How to review your retirement portfolio?

Here is how you can review your retirement portfolio in seven easy steps. If you have not yet created a proper retirement plan, you can quickly do so using the freefincal robo advisor.

The robo advisor can handle up to three post-retirement income streams; provide an automated asset allocation schedule to reduce sequence of returns risk (poor returns that can derail our plans); provide a detailed bucket strategy calculation with options to include various levels of pension after retirement (income flooring); Options to DIY bucket strategy and use an annuity ladder. More details and illustrations are here: Plan for retirement using the freefincal robo advisor tool.

The review process

1. Calculate the current value of the retirement corpus. Determine current values of mutual fund/stock holdings, PPF, EPF/NPS, FDs, etc. and add them all up.
2. 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, I can be financially independent without working for about 11 years if I retire today!  I would need a sum supporting me never to work again, providing me with an inflation-protected income stream for at least 40-45 years!

3. 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!

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. What is the growth rate of the retirement portfolio? What is the XIRR of each asset class? That is, the XIRR of equity holdings*, PPF, EPF, NPS, gold, FD, real estate etc. Suppose the XIRR of the volatile asset classes is closer or closer to your expectations; not much needs to 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.

* You can easily find this with our Google Sheets-Based Portfolio Tracker.

 The current monthly investment required also indicates the portfolio growth rate. Things are reasonably fine if it is not much higher than the initial monthly investment planned.

6. Is your retirement in auto-pilot mode? For the salaried class, some investments like EPF are mandatory. If the current monthly investment required is lesser than the monthly EPF contribution, your retirement is in auto-pilot mode, provided there is no significant break or reduction in contributions due to layoffs or lesser-paying jobs.
7. Are you planning to retire early?  If so, the first requirement is to invest as much as possible and as early as possible.

Do be careful while interpreting these numbers, and be sure to avoid these common retirement planning mistakes.

If you could go through these seven steps once a year, you can ensure that your retirement plans are on track.

Helpful tools:

• You can use the robo-advisor to plan and track the progress of our financial goals
• You can use the goal-based auditing tool to adjust or customise your asset allocation plan and review your financial goals.