In the previous article, we discussed the basics and important considerations while planning for a five-year girl’s future. In this article, we will do the calculations with some inputs and assumptions. We shall also include the retirement planning calculation for the parents in brief.
We shall use the robo advisory tool for this illustration. We must point out that several inputs for the calculation are not available. For instance, the present investments for retirement and the child. So the calculation below should only be used as a broad guideline on how to do the calculation. None of the results should be directly used.
Inputs and assumptions
We shall show the example of a unified portfolio, That is all investments are made with a set asset allocation (equity + fixed income) in a single portfolio. Withdrawals are made as and when required. The final amount left will be the target retirement corpus. See these articles for more details.
- Financial Goal Planning with a Unified Portfolio
- How I manage my money using the unified portfolio approach
- Not this approach should only be used for combining long-term goals. Do not combine a short-term goal and a long-term goal.
- Age of husband: 35
- Age of wife: 30. The retirement planning will be done until the younger spouse turns 90.
- Age of child: 5. As mentioned in the previous article, we shall plan for a UG and PG education and her marriage.
- Current monthly expenses that will persist until retirement for the couple (this excludes expenses for the child, in-laws, EMIs etc): Rs. 50,000
- Expected age of retirement: 60
- Inflation before retirement: 7%
- Inflation after retirement: 6%
- The rate at which investments will increase each year in the unified portfolio: 10%
- Post-tax return expected from equity: 9%
- Post-tax return expected from fixed income: 5%. Remember we are looking at a two-decade and more investment journey! Do not expect returns to be as high as they are today!
- Naturally, the above return assumptions may not be acceptable for many. This is why users can vary all assumptions at will (at their risk).
- No income flooring option is used in the retirement planning (this can be turned on in the robo tool if necessary). See: How to beat inflation after retirement along with guaranteed pension.
- Corpus required for retirement: Rs. 10.7 Crores. This is assumed to be managed by bucket strategy as explained here: Retirement plan review: Am I on track to retire by 50? Details of the buckets can be found in the robo tool. A DIY bucket strategy sheet and an annuity laddering sheets are also available as stand-alone modules.
- Undergraduation:
- Goal deadline: 12 years from now
- Current cost: Rs. 20 lakhs
- inflation 10%
- Goal target: Rs. 62.7 lakhs
- This amount will be withdrawn in five equal instalments from years 8 to 12
- Postgraduation:
- Goal deadline: 16 years from now
- Current cost: Rs. 50 lakhs
- inflation 10%
- Goal target: Rs. 2.3 Crores
- This amount will be withdrawn in five equal instalments from years 12 to 16
- Marriage:
- Goal deadline: 19 years from now
- Current cost: Rs. 25 lakhs
- inflation 10%
- Goal target: Rs. 1.5 Crores
- This amount will be withdrawn in five equal instalments from years 15 to 19
- There are 25 years to retirement. So the realignment from an investment portfolio to a bucket portfolio will happen over the last 5 years of investing.
Results
- Initial monthly investment required in the unified portfolio to fund all the above goals: Rs. 87,621 (including EPF or NPS mandatory contributions).
- The monthly investment is expected to increase by 10% each year
- The recommended asset allocation schedule and how the corpus grows are illustrated below.
- In addition to guidance on when and how to gradually withdraw funds for each goal, the tool also suggests how much to withdraw from equity and how to withdraw from fixed income.
The portfolio needs to be rebalanced each year to follow this auto-recommended schedule.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Withdrawals will be made as per the schedule mentioned above. The net corpus decreases after each such withdrawal and grows in between.
The final net corpus is zero because the last few withdrawals are for retirement. This is only a technicality (to compute the initial investment amount) and not an actual withdrawal because typically just before retirement that will be the only long term goal left. So a withdrawal is unnecessary.
The advantage of this unified portfolio method is a lower investment amount. Had the goals been treated separately the total investment will be about 28% higher (the robo tool offers both choices). In a unified portfolio method, we take into account the extra cash that will be available for investment once each of the earlier goals is reached. It is debatable whether this is a reasonable assumption or not.
Treating goals separately is, in our opinion, the better choice in terms of risk management. The unified approach can be used in cases where the user has a shortfall of funds to invest. The approach can be changed at any point in the journey.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)