Whether you seek normal or early retirement, here are seven questions to ask once a year while reviewing your retirement portfolios.
1. What is the retirement corpus worth today? If you retire today, how many years can you be financially independent? If this number equals the years you expect to be alive from today, you are financially independent!
For example, suppose I can be financially independent without working for about 11 years if I retire today! To never work again, I would need a sum that would support me and provide me with an inflation-protected income stream for at least 40-45 years!
2. What is the projected worth of the retirement corpus? If the present corpus was allowed to grow until the expected retirement age at a reasonable rate (= return on investment), how many years can you be financially independent? If this number equals the years you expect to live after retirement, you can safely reduce further investments, if not stop them altogether.
For example, If I do not invest for retirement anymore and retire as per my plans at 65, I may have a corpus supporting me for about 10-11 years. I would need a corpus supporting me for 20-25 years!
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3. What is the growth rate of the retirement portfolio? What is the XIRR (annualized return) of each asset class? That is, the XIRR of equity holdings, PPF, EPF, NPS, gold, FD, real estate, etc. If the XIRR of the volatile asset classes is more or less close to your expectations, not much need be done. It might be time to rebalance if it is much higher than expectations. If it is much lower, you will need to look at the source of underperformance and take a call on it.
The current monthly investment required also indicates the portfolio growth rate. Things are reasonably fine if it is not too much higher than the initial monthly investment planned.
The goal analysis sheet of the automated mutual fund and financial goal tracker on Gooel Sheets answers these questions automatically).
4. What is the current monthly investment required? Considering the current corpus, what monthly investment is required today, increasing yearly at an assumed (reasonable!) rate? All is well if the monthly investment is lower than what you invest. Otherwise, you will need to cut expenses until you can invest enough.
5. Is your retirement in auto-pilot mode? For the salaried class, some investments like EPF are mandatory. Suppose the current monthly investment required is less than the monthly EPF contribution. In that case, your retirement is in auto-pilot mode, provided there is no significant break or contribution reduction due to layoffs or lesser-paying jobs.
The freefincal robo tool answers this holistically and comprehensively: How to use the freefincal robo advisory tool to track the progress of our financial goals
(Optional) Are you planning to retire early? If so, the first requirement is to invest as much as possible and as early as possible. If you do this consistently for at least a few years, use the financial robo-advisor tool to determine how soon you can retire.
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