I am forced into semi-retirement – Can I still be financially independent?

Published: February 11, 2023 at 6:00 am

A reader asks, ” I am 45 years old with a corpus of around 2.5cr distributed across equity (MFs + stocks) and fixed assets (Bank Savings+Debt Funds+SGB+EPF). I worked for a niche media industry and lost my job in 2020 when Covid hit.”

“With few opportunities locally, finding suitable positions has been difficult, especially with my experience. As a result, I started looking for WFH opportunities and fortunately found a job based in the US that pays me in dollars (equivalent to about 1.25L per month) while allowing me to work from India.”

“I have mostly led a simple lifestyle without any liabilities and have cultivated the habit of saving and investing from an early age. I have invested in mutual funds since 2006, aggressively from around 2011, and redeemed very little for personal use, if at all, except for rebalancing a few times over the years.”

“My only dependent is my spouse, and we have no children. Parents are financially independent. I don’t feel like returning to a corporate environment as I enjoy my work-life balance, which allows me to explore other hobbies or opportunities.”

“Am I on the right path to financial independence? My monthly expenses are about 50k a month, and I continue to invest in equity MFs with whatever I have left at the end of the month.”

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Let us assume you are ready to retire now and find out using the freefincal robo advisory tool if the accumulated corpus of Rs. 2.5 Crores is enough to do so.

Assumptions and inputs

  • The assumed life expectancy of the younger spouse 90 (we assume she is two years younger)
  • Inflation during retirement (%) 6
  • Monthly expenses in the first year of retirement 50,000
  • Years in retirement (until younger spouse reaches age 90) 47
  • Return from equity after tax (if any) 10%
  • Net return from all forms of fixed income after tax 7%
  • Return from income bucket (used for monthly income) 5 %

Output: Corpus allocation strategy

  • Emergency corpus: Rs. 12.5 Lakhs
  • Suggested Equity allocation (in all buckets combined) after retirement 32%
  • Suggest Fixed income allocation (in all buckets combined) after retirement 68%
  • Income bucket (100% liquid fixed income) to provide income in retirement with a return of 5 % p.a.This will ensure income for the first 15 years of retirement. Rs. 1.2 Crores
  • Low-risk bucket with 50 % fixed income (rest equity) expected to grow at a rate of 9 % p.a. Rs. 62 lakhs
  • Medium risk bucket with 30 % fixed income (rest equity) expected to grow at a rate of 9 % p.a. Rs. 33 lakhs
  • High-risk bucket with 0 % fixed income (rest equity) expected to grow at a rate of 10 % p.a. Rs.23 lakhs

So the total corpus requires is about Rs. 2.5 Crores = the corpus at hand. So you are already at the threshold of financial independence. To cement this status, we recommend continuing your WFH assignments and investing what you can each month. The longer the existing corpus grows untouched, the stronger your financial independence. Ideally, we should plan for a secondary source of income that lasts a lifetime in our bid to build the ideal retirement portfolio.

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Pattabiraman editor freefincalDr 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.
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