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Here is a set of slides on retirement planning that I have used at the investor workshops. The aim is to convey the importance of retirement planning in a few slides to young earners.

**1. Imagine how your monthly income will evolve in the future**

The abrupt stoppage in income represents retirement.

**2. Now imagine how your monthly expenses will evolve in the future**

Obviously expenses do not stop when income stops. So those who do not have the means to account for expenses when income stops, better hope they are dead on or before retirement!

The expenses in the above graph seem to head for the roof. Let us rescale it over our expected lifetime.

In about 15 years after retirement, the monthly expenses, thanks to inflation is higher the last drawn pay!

Meaning, if I had an (imaginary) monthly pension that equals my last drawn pay, I will only be financially independent for about 15 years after retirement. So we need to do a lot better!

The sad truth is actual pensions (be it from a pension plan or employer-provided annuity) are much, much lower than the last drawn pay. Something like this.

Therefore, for your own sake, eradicate the concept of a ‘pension’ from your minds.

Instead, think:** Inflation-protected income **(blue dot within the red circles, below)

To generate this inflation-protected income, you need a corpus that is anywhere between ~ 25-35 times (depends on inputs) your annual expenses at the time of retirement (the earliest green dot). As you withdraw more and more from the corpus, it decreases and drops to zero hopefully when you die, and only when you die. Ensuring this, is the **third stage** in retirement planning.

**The second stage is to ensure our investments grow and hits the first green dot, when we retire.**

**We need to do two things to grow the corpus. 1. Choose a productive, but diversified portfolio; 2. Invest**

One cannot choose to invest a constant sum because, the monthly investment to be made immediately will be much larger than monthly expenses. The above graph has a logarithmic *y*-axis and hence the lines appear linear.

**To ease our burden, we can instead choose to increase out investment each year from now until retirement.**

This would imply we must strive to invest as much as spend.

This is easier said than done. Let us have a look at the second graph again

In this picture, the gap between the monthly salary and monthly expenses increases as we approach retirement. If this is how our lives pan out, then we can mange to invest as much as we spend with a little effort and discipline.

Unfortunately,

Our expenses tend to grow in steps as shown in green above. Call it lifestyle creep if you like. If we embrace every new technology that arrives, if we cannot distinguish between our needs and wants, if we succumb to peer pressure and buy what others buy, we will never be able to invest enough.

Meaning, we are sowing the seeds for our future financial doom today.

Lifestyle creep, the desire to spends for today and enjoy when young, resides in all of us. What is needed is a definite boundary: We can spend the way, we wish as long as we can manage to invest as much as we can spend.

**Safeguarding that boundary is the first and foremost step of retirement planning. **

If you want to get started with your retirement planning, do give this a try:The low-stress retirement calculator (hopefully!)

**About the Author**M. 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. Follow @freefincal “

**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

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When is your session in Hyderabad. Please do it on a Sunday.

It can only be in May. Will announce it soon.

When is your session in Hyderabad. Please do it on a Sunday.

It can only be in May. Will announce it soon.

Thanks for forwarding the slides.

I am very thankful to you if you can post the excel/power point on this to manupulate with the individual correct figure.

This is based on the financial planning template. You can use the retirement sheet there.

Thanks for forwarding the slides.

I am very thankful to you if you can post the excel/power point on this to manupulate with the individual correct figure.

This is based on the financial planning template. You can use the retirement sheet there.

Hello Sir, You mentioned 300 times annual expenses is the corpus required…Is that a typo error?

These numbers depend on the inputs. No, it is not an error 🙂

Hello Sir, You mentioned 300 times annual expenses is the corpus required…Is that a typo error?

These numbers depend on the inputs. No, it is not an error 🙂

Concepts, when conveyed in slides, have profound impact in readers memory.

Thanks for sharing the presentation Pattu.

Thank you. I agree.

Concepts, when conveyed in slides, have profound impact in readers memory.

Thanks for sharing the presentation Pattu.

Thank you. I agree.

superb work sir.. thanks for sharing..

Thank you.

superb work sir.. thanks for sharing..

Thank you.

Resp .Sir

Being AN ANESTHESIOLOGY doctor,I am not competent to comment on finance blogs, BUT I am entitled to seek clarification.

But my limited understanding in personal finance permits to believe that when you advise that 300 times your present monthly expenses are needed for inflation adjusted retirement corpus,you are referring to PERPETUITY concept in personal finance with an assumption of 8 % return on retirement corpus.Is this right?

NEXT doubt is about logic to provide for 38 times annual expenses at retirement as kitty for retirement corpus.It appears that you intend to provide for 28 years in retirement life-2040-2068,so I cannot make out logic for 38 years.

PLEASE DO CLARIFY.

i HAVE ALWAYS LOOKED FORWARD TO GAIN FROM YOUR POSTS.

THANK YOU LOT FOR BEING HELPFUL & KIND ALWAYS.

DR RAJANIKANT V GAJJAR

BHARUCH

No this is not a perpetuity. Here the corpus goes to zero at some point in the future. The multiples shown above are specific to inputs. The point is a large corpus is required if inflation is to be factored in after retirement,

Resp .Sir

Being AN ANESTHESIOLOGY doctor,I am not competent to comment on finance blogs, BUT I am entitled to seek clarification.

But my limited understanding in personal finance permits to believe that when you advise that 300 times your present monthly expenses are needed for inflation adjusted retirement corpus,you are referring to PERPETUITY concept in personal finance with an assumption of 8 % return on retirement corpus.Is this right?

NEXT doubt is about logic to provide for 38 times annual expenses at retirement as kitty for retirement corpus.It appears that you intend to provide for 28 years in retirement life-2040-2068,so I cannot make out logic for 38 years.

PLEASE DO CLARIFY.

i HAVE ALWAYS LOOKED FORWARD TO GAIN FROM YOUR POSTS.

THANK YOU LOT FOR BEING HELPFUL & KIND ALWAYS.

DR RAJANIKANT V GAJJAR

BHARUCH

No this is not a perpetuity. Here the corpus goes to zero at some point in the future. The multiples shown above are specific to inputs. The point is a large corpus is required if inflation is to be factored in after retirement,

Thanks Pattu. Pictures are indeed worth a thousand words!

Btw, for the the ‘corpus’ part – i am still fascinated by the idea of, growing and keeping (in the investment phase) and withdrawing (in the retirement phase) all through a good balanced fund!! Would love to see this concept in pictures -;)

Thanks Pattu. Pictures are indeed worth a thousand words!

Btw, for the the ‘corpus’ part – i am still fascinated by the idea of, growing and keeping (in the investment phase) and withdrawing (in the retirement phase) all through a good balanced fund!! Would love to see this concept in pictures -;)

In addition to my previous query,I find that 300 times CURRENT MONTHLY EXPENSES fits with my understanding,not CURRENT ANNUAL expenses. Please verify with your inputs.

In addition to my previous query,I find that 300 times CURRENT MONTHLY EXPENSES fits with my understanding,not CURRENT ANNUAL expenses. Please verify with your inputs.

Wonderful post… Most simple and most effective presentation.

Thank you.

Wonderful post… Most simple and most effective presentation.

Thank you.

fantastic articles with free of cost. thanks sir

fantastic articles with free of cost. thanks sir

fantastic articles with free of cost. thanks sir

Thank you.

Thank you.

Excellent article Sir. It is my pleasure to read. Good to know retirement expense and how to handle it.

Thank you.

Excellent article Sir. It is my pleasure to read. Good to know retirement expense and how to handle it.

Thank you.

I have prepared a small excel which tell us how much you need to save every month for the pre determined monthly expenses. For simplicity of calculation the assumption here is that the investment period is same as survival period after retirement.

e.g. If you start investing at the age of 35 Yrs till retirement age of 60 Yrs then total investment period wold be 25 yrs. Now if we assume that Survival period is also 25 Years (i,e. Age of 85 Yrs) then for following inputs:

Monthly Expenses at the current valuation : 30000/-

Inflation Rate : 8.5%

CAGR on your investment : 11.5%

Then you need to invest approx 15170/- every month and increase it by 8.5% (Inflation rate) every year to get the inflated monthly income (e.g 2,30,603 for First month of retirement ) you would need for next 25 years after retirement

I have prepared a small excel which tell us how much you need to save every month for the pre determined monthly expenses. For simplicity of calculation the assumption here is that the investment period is same as survival period after retirement.

e.g. If you start investing at the age of 35 Yrs till retirement age of 60 Yrs then total investment period wold be 25 yrs. Now if we assume that Survival period is also 25 Years (i,e. Age of 85 Yrs) then for following inputs:

Monthly Expenses at the current valuation : 30000/-

Inflation Rate : 8.5%

CAGR on your investment : 11.5%

Then you need to invest approx 15170/- every month and increase it by 8.5% (Inflation rate) every year to get the inflated monthly income (e.g 2,30,603 for First month of retirement ) you would need for next 25 years after retirement

Very Nice Article Sir ….ThankYou

Thank you.

The model assumes that there is no saving/investment on post-retirement pensions. How does the projection work out assuming a modest, say 10% saving rate on post retirement pension? Assuming no exigency which consumes your fund.

I find these posts very useful. There is no single solution to every problem but thinking and making suitable changes to your financial planning will help us achieve the mission – a peaceful and financially secure retirement.

Thanks Pattu for the excellent work.

It is an excellent and realistic article.However you have omitted a part of retired persons who are fortunate enough to receive indexed pension like bank employees,central and state govt employees.When they retire they receive about half or one third of their last pay drawn as pension but this increases over a period of time as cost of living increases.My father was an officer in SBI when retired in 84 his salary was about 3000/-.He is alive today and 90 years old.his pension today is 16,500/-.Though not fully sufficient yet he is much better than his counter parts who do not have pension schemes and toil all their lives to create a sufficient retirement corpus.The most tragic thing here is a person does not know how long he will live?He also does not know what are the type of illness he will have to face!-ASHOK MEHTA

Moreover it is really frightening for retired persons who are not fortunate enough to create a sufficient retirement corpus!

However thank you very much ,Murari sir for the excellent article!This will certainly act as an eye opener for the persons who are still working.

You cannot make those assumptions. You also need money to invest !

Indexed pensions will soon be a thing of the past. Which is why the NPS was introduced.The present gen cannot rely on that.

Thank you.

Thanks for sharing. There is no need to make that assumption. You can see the math used in my retirement sheets.

Not able to view your slides. In most of the articles also pictures/graphs are not visible. Having access to graphs helps in better understanding.

Please rectify the problem.

Thank you for your informative blog.

Rectified. Please check. Thanks

Got it. Thanks.

Dear Pattu,

good morn… Another excellent post and thanks for the same…

i did a simple excel sheet to see what happens to the end corpus at the end of an assumed life expectancy of 85 age . (questionable!!)

The basic assumptions are:

– current age – 54; retiring at – 60; income of next 6 yrs matches exps and no savings and no draw-out from present corpus. A sort of a break-even situation for 6 years !

– present corpus rs. 4 crores; long-term interest – 8%; long-term inflation – 10%

– monthly living exps – Now – 75,000 and at the age of 60 – rs. 1.33 lakhs.This assumes no rent for living space and a ‘fully equity-owned debt-free dwelling’ and just 2 people living off this sum !!

Outcomes and conclusions:

– the corpus becomes rs. 6.3 crores at the age of 60; Based on net inflow of corpus during the next 25 years (age 60 to age 85) and with the aforesaid inflation and return rates, the corpus remains at the end of age 85 at rs. 10.9 crores which, i think, is not at all bad ! Of course, its present value of today (discounting for 31 yrs) is just rs. 1 crore !!!

The point i wish to emphasise is that one can still preserve the corpus and leave something for children or charity, as one may choose !!

I will be thankful if I can email my excel sheet of this to you for your review and comments. Please let me know.

thanks a lot…

with warm regards,

Chellamani