Inflation-protected Income Simulator

Published: January 19, 2014 at 6:32 pm

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Last week I wrote about an inflation protected income can be generated by dividing a corpus into 4/5 portions and investing each into financial instruments of varying risk and tenure, while setting up an income ladder for the first few years. As the investment in each bucket matures a new income ladder will be set up with it.

If you have not read that post, I strongly suggest you read it first and then get back to this one:  Generating an inflation-protected income with a lump sum

I was surprised by the popularity of that post and received many requests to post a calculator with which different possibilities based on this strategy can be simulated. This post describes such an inflation-protected income simulator.

The calculator has two sheets:

  • Single Bucket Income Ladder This helps to understand what an income ladder is.

The idea is to invest in fixed-income instruments of varying maturity. The maturity value of each investment corresponds to the income needed that year taking an assuming rate of inflation into account. For more details see here 

This is an offshoot of my popular income ladder calculator  This describes two ways of creating the ladder: cumulatively or with payouts.

Last weeks post and the present calculator assumes investments are cumulative.

  • 0+6 Buckets income ladder

This sheet allows you to determine the total corpus required to generate an inflation-protected income for desired period ( a maximum of 210 years!!).

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This period can divided into  a maximum of 7 buckets of varying risk (as determined by the return).

When the buckets mature, an income ladder of some assumed return is set up to generate income.

The calculator is flexible, and the buckets can be constructed with different tenures and different returns.

Note: Please use appropriate post-tax returns everywhere.

This is a deterministic simulator. That is the returns are assumed to be fixed. If you use higher returns, they are likely to be associated with a non-zero standard deviation and therefore, volatility. This will have a huge impact on the final results.

If you are interested in trying out buckets with volatility, try out this popular and addictive: Retirement ‘Bucket Strategy’ Simulator

Download the Inflation-protected Income Simulator

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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

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38 Comments

  1. i view the strategy of bucketing as a way to utilize the retirement corpus wisely than simple advice of investing it only in traditional debt instruments. thank you for the strategy and related calculators.

  2. i view the strategy of bucketing as a way to utilize the retirement corpus wisely than simple advice of investing it only in traditional debt instruments. thank you for the strategy and related calculators.

  3. Hi Pattu, thanks for en-lighting me through your website, This is a great source for investment ideas for someone like me who is contemplating retiring early. The bucket calculator is a great tool to understand the strategy. What is your thought on dividing the corpus half, and creating a single bucket ladder and investing the other half in debt or balanced fund for 10 years. If this fund returns 9% annually, the investment will double by compounding. With this one could create another single bucket ladder for the remaining years.

    1. Thank you. Although the remaining corpus will double by compounding, you will be to be wary of inflation (8-10%). For a 10 Y duration the volatility has to be low. So be careful with balanced funds with high equity content. please keep in mind these are deterministic calculations. You will need to make a call as things progress. Always remember to keep volatility (risk) zero in main income bucket, minimum in second bucket. If you want returns then you will need to give it time at least 15 years.

      1. Thanks Pattu, Just downloaded your bucket simulator tool. Can’t thank u enough, appreciate your hard work. Will play with this tool extensively before throwing in my paper. Finally I have a genuine source of information without any conflict of interest.

  4. Hi Pattu, thanks for en-lighting me through your website, This is a great source for investment ideas for someone like me who is contemplating retiring early. The bucket calculator is a great tool to understand the strategy. What is your thought on dividing the corpus half, and creating a single bucket ladder and investing the other half in debt or balanced fund for 10 years. If this fund returns 9% annually, the investment will double by compounding. With this one could create another single bucket ladder for the remaining years.

    1. Thank you. Although the remaining corpus will double by compounding, you will be to be wary of inflation (8-10%). For a 10 Y duration the volatility has to be low. So be careful with balanced funds with high equity content. please keep in mind these are deterministic calculations. You will need to make a call as things progress. Always remember to keep volatility (risk) zero in main income bucket, minimum in second bucket. If you want returns then you will need to give it time at least 15 years.

      1. Thanks Pattu, Just downloaded your bucket simulator tool. Can’t thank u enough, appreciate your hard work. Will play with this tool extensively before throwing in my paper. Finally I have a genuine source of information without any conflict of interest.

  5. Do you think its a good idea to start working on the bucket strategy as soon as you reach 60 & retired OR when one actually retires from active work life (with a shade more corpus at say 63-64) ?

  6. Do you think its a good idea to start working on the bucket strategy as soon as you reach 60 & retired OR when one actually retires from active work life (with a shade more corpus at say 63-64) ?

  7. Pattabiraman Murari ji, Thanks for the clarification. Will take notes and convert this into an action plan.

  8. Pattabiraman Murari ji, Thanks for the clarification. Will take notes and convert this into an action plan.

  9. Pattabiraman Murari ji, Thanks for the clarification. Will take notes and convert this into an action plan.

  10. Thank you very much Pattu I really appreciate your advice and help on this. I'm 57 this year and want to retire at 60.. so I'll have a play around with this and read all the data on the web pages. Looks wonderful.. thank very much again..

  11. Thank you very much Pattu I really appreciate your advice and help on this. I'm 57 this year and want to retire at 60.. so I'll have a play around with this and read all the data on the web pages. Looks wonderful.. thank very much again..

  12. Thanks for this calculator. I have couple of requests, is it possible to increase the maximum years from 30 to 40/45? Also in the 2nd sheet, it is restricted only upto 25, again is it possible to increase to 40/45 yeras? Thanks

  13. Thanks for this calculator. I have couple of requests, is it possible to increase the maximum years from 30 to 40/45? Also in the 2nd sheet, it is restricted only upto 25, again is it possible to increase to 40/45 yeras? Thanks

  14. Hi Pattu sir,
    Does it work expenses like child marriage ,education and medical expenses? or those things needs to be consider seperately ?Please confirm

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