Can I retire at 40 with one crore in India? Early retirement feasibility check

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Can I retire at 40 with one crore in India? Is it possible to retire early in India with just one crore? Since the answer is not a simple “yes” or “no” let us do a how to retire early at 40 feasibility check with some reasonable and close to reality assumptions. First, it is important to understand what early retirement means and what it is not. SInce there are many misconceptions about FIRE – financial independence, retire early, I would strongly suggest that you check out this video first.

Assumptions for a 40-year-old with one crore wanting to retire early in India

Can I retire at 40 with one crore in India? Early retirement feasibility check

Not every 40-year-old can retire early. So we will have to define our universe and make several assumptions. The feasibility of the plan entirely depends on these assumptions. So utmost care is necessary. For a more thorough feasibility check please use the fornical Robo Advisory Software Template.

Warning: This article has several projections based on assumptions which can often be far removed from reality. So no part of this article should be considered as investment advice. It is meant to educational to a potential early retiree. I shall take no responsibility for your gains or losses arising from adapting this or any other approach discussed here. Be sure to read the limitations section below.

  1. The person is unmarried or married without kids (with no plans to become parents). Unless there is there is a separate corpus to provide for their needs, it is not possible to retire early with kids in India with just one crore. No need to compute that!
  2. We shall assume that the spouse or partner does not work.
  3. There is no separate emergency fund
  4. Health insurance for Rs. 25 lakh is available and the premium at 40 is Rs. 15,000 for a single person and Rs, 25,000 for the couple (floater, both aged 40). The health insurance premium increases every 5 years by 10%
  5. Current annual  expenses are Rs. 2.5 Lakh year (20K a month) for one person and Rs. 30K for two. This is assumed to increase at 6% inflation year on year.
  6. Forty lakh is put in fixed income that returns 6% a year (post-tax). The rest in equity with a 10% post-tax return assumption. As pointed out earlier: if we want to be financially free, we should not count on frugality, but worry about sequence of returns risk! So instead of a constant 10% return, testing with variable return testing is mandatory but we do not have enough history for this. We shall however consider one example.
  7. From the six year onwards, we shift 10% of equity corpus  to fixed income.

How to retire early at 40: Case 1: single: early retirement feasibility check

This table illustrates how the above assumptions play out year on year. I shall explain how to create this table in a video. The number under “how long will the money last?” column is calculated as: total corpus (year end) divided by expected annual expensed in the next year. When this number falls below one, income withdrawals are not possible. The idea is to ensure that this number fall below one at least after age 85 (of the younger spouse/partner).

For Rs. 20,000 monthly expenses and 15,000 health insurance and above assumptions the corpus can last up to age 95-96 which is decent. Scroll down the table to see pictorial representation.

 

AgeTotal expensesFixed Income corpus year endEquity corpus year endHow long will the money last?
40   2,55,000     39,69,700    66,00,000           39.23
41   2,69,400     39,22,318    72,60,000           39.28
42   2,84,664     38,55,913    79,86,000           39.36
43   3,00,844     37,68,374    87,84,600           39.48
44   3,17,994     45,88,569    86,96,754           39.34
45   3,37,674     54,27,805    86,09,786           39.33
46   3,56,945     62,87,749    85,23,689           39.25
47   3,77,371     71,68,512    84,38,452           39.11
48   3,99,024     80,70,133    83,54,067           38.92
49   4,21,975     89,92,579    82,70,527           38.54
50   4,47,953     99,33,979    81,87,821           38.25
51   4,73,742  1,08,95,761    81,05,943           37.92
52   5,01,077  1,18,77,594    80,24,884           37.55
53   5,30,053  1,28,79,032    79,44,635           37.13
54   5,60,767  1,38,99,492    78,65,188           36.57
55   5,95,139  1,49,36,324    77,86,537           36.09
56   6,29,649  1,59,90,448    77,08,671           35.57
57   6,66,230  1,70,60,790    76,31,584           35.02
58   7,05,006  1,81,46,078    75,55,269           34.45
59   7,46,109  1,92,44,826    74,79,716           33.76
60   7,91,674  2,03,53,191    74,04,919           33.13
61   8,37,857  2,14,71,176    73,30,870           32.48
62   8,86,810  2,25,96,500    72,57,561           31.80
63   9,38,701  2,37,26,568    71,84,985           31.11
64   9,93,706  2,48,58,442    71,13,135           30.33
65 10,54,207  2,59,86,482    70,42,004           29.60
66 11,16,010  2,71,09,153    69,71,584           28.84
67 11,81,521  2,82,22,278    69,01,868           28.08
68 12,50,962  2,93,21,193    68,32,850           27.29
69 13,24,571  3,04,00,701    67,64,521           26.45
70 14,05,011  3,14,52,471    66,96,876           25.64
71 14,87,718  3,24,72,507    66,29,907           24.82
72 15,75,386  3,34,53,718    65,63,608           23.99
73 16,68,315  3,43,88,270    64,97,972           23.14
74 17,66,819  3,52,67,522    64,32,992           22.25
75 18,73,892  3,60,79,146    63,68,662           21.39
76 19,84,571  3,68,15,327    63,04,976           20.51
77 21,01,892  3,74,64,569    62,41,926           19.63
78 22,26,251  3,80,14,261    61,79,507           18.74
79 23,58,073  3,84,50,587    61,17,712           17.82
80 25,00,726  3,87,55,330    60,56,534           16.92
81 26,48,840  3,89,14,872    59,95,969           16.01
82 28,05,842  3,89,11,145    59,36,009           15.09
83 29,72,263  3,87,24,432    58,76,649           14.17
84 31,48,669  3,83,33,233    58,17,883           13.22
85 33,38,876  3,77,10,714    57,59,704           12.29
86 35,37,086  3,68,34,574    57,02,107           11.35
87 37,47,189  3,56,77,051    56,45,086           10.41
88 39,69,898  3,42,07,961    55,88,635             9.46
89 42,05,970  3,23,94,506    55,32,749             8.50
90 44,59,743  3,01,97,320    54,77,421             7.55
91 47,24,993  2,75,81,273    54,22,647             6.59
92 50,06,159  2,45,04,421    53,68,421             5.63
93 53,04,194  2,09,21,294    53,14,736             4.67
94 56,20,111  1,67,82,616    52,61,589             3.70
95 59,58,874  1,20,30,895    52,08,973             2.73
96 63,13,839     66,12,231    51,56,883             1.76
97 66,90,101       4,64,087    51,05,314             0.79
98 70,88,939–    64,81,180    50,54,261           -0.19
99 75,11,708– 1,42,96,710    50,03,719           -1.17
100 79,64,122– 2,30,66,087    49,53,682#DIV/0!

Early retirement at 40 in India. Results for single person with 20,000 monthly expenses and Rs. 15,000 health insurance

Can a single person retire at 40 in India with one crore?

Answer: Possible; Probable; However needs tremendous luck (see limitations below)

How to retire early at 40 Case 2: Couple (no kids): early retirement feasibility check

Monthly expenses: 25,000. Health insurance premium (annual): Rs. 25,000. All other assumptions as above.

Early retirement at 40 in India. Results for couple with no kids and 25,000 monthly expenses and Rs. 25,000 health insurance

Can a couple person retire at 40 in India with one crore?

Answer: With 25K monthly expenses (+ health insurance costs) the money will last until 84. So it would be a huge risk (see limitations below)

Monthly expenses: 30,000. Health insurance premium (annual): Rs. 25,000. All other assumptions as above. The money will last only until age76.

How would a couple need to retire at 40 in India?

At least 1.5 Crores.

What are the limitations of this study?

Let us go over each of the assumptions

  1. Monthly expense reasonable but sudden jumps in expenses due to sickness is not considered.
  2. Lifestyle creep is not considered
  3. Inflation assumption of 6% for current expenses is “ok”, but 8% is better.
  4. Fixed income post tax return of 6% is just about possible
  5. Equity post tax return of 10% is just about possible. However unlike when investing for retirement, this number has little relevance as sequence of returns has to be considered as done here: Want to be financially free?  Worry about sequence of returns risk!
  6. Health insurance costs could suddenly shoot up because of changes in company policy
  7. 10% transfer from equity to fixed income is possible and necessary but is it practical?
  8. No emergency corpus is accounted for. Reimbursement health claims can get in trouble otherwise (one can make do with a credit card to some extent). At least 15-20 lakh emergency corpus would be better.
  9. Anything else? Please leave a comment.

Factoring in the sequence of returns

We have assumed equity return each year is a nice 10%. This is how returns would fluctuate in reality.

Early retirement sequence returns risk

Early retirement sequence returns risk for Sensex

The problem is that there are only 39 data points. This means I can test only one sequence of returns. I will need to test at least 100s of sequence of returns for which we do not have data.

Even for this one favourable sequence of return (where above results are not altered much), the equity corpus can fluctuate this much. How many early retirees can stomach? How many of them have such an experience?

equity corpus fluctuations in early retirement corpus when sequence of returns are included

So I would recommend a higher corpus so that you can live off your fixed income assest for at least 15 years while equity recovers. Use the Key features of the freefincal robo advisory software template to stress test your retirement plan. Do not be in a hurry to quit with just one crore.

What is FIRE: Financial Independence, Retire Early

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, 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. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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5 Comments

  1. Dear Sir,

    They say Equity is a best investment option for long term. What would happen if i invest a lumpsum of Rs 40 lakhs in Equity mutual fund today for the next 10 years, with the Nifty PE ratio over 26. Can I expect a CAGR of at least 12% to 15% for this term. Any backtesting data on this. Thanks

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