Retirement planning case study: Helping Somnath retire by 55

Published: March 13, 2022 at 6:00 am

Somnath is 30 and salaried and hopes to retire by 55. In this case study, we shall find out how he can plan for financial freedom in retirement.  That is, we shall find out how Somnath can derive an inflation-protected income and be financially free after retirement.

What is inflation-protected income? A retirement income that increases each year as per the needs of the family. It takes into account inflation in expenses as well as due to lifestyle modifications. Young earners today should not be thinking and be talking about constant income or pension in retirement. They should consider how to consistently beat inflation with an inflation-protected income (also known as inflation-indexed income). Read more: Generating an inflation-protected income with a lump sum.

What is financial freedom? The ability to generate inflation-protected income for a given number of years, preferably until the death of the youngest dependent.

We shall use the freefincal robo advisory tool to create a retirement income plan for Somnath who is married to a homemaker aged 25.

Recommendation: After a few years, we recommend Somnath reduce the retirement age to 50 as many salaried employees may not have the health to continue further. See: How to prepare for the “new normal” in retirement planning.


Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

We shall plan for retirement income from the time Somnath reaches 55 to the time his wife (younger spouse in general) reaches 90. Therefore, Somnath has 30 years to invest (the most precious asset) and needs to plan for inflation-protected retirement income for 35 years.

We shall consider 6% inflation before and after retirement. It is better to find out how much your expenses are increasing year on year and use that rate. You can use out Personal Inflation Calculator.

Somnath has monthly expenses of Rs. 40,000 per month and another Rs. 40,000 annual expense. All these expenses will persist until retirement. His average monthly expenses at the time of retirement will be about Rs. 3 lakhs.

The total corpus required (excluding existing investments) is about Rs. 14 Crores! The monthly investment to be made (including mandatory  EPF or NPS deductions) is Rs. 1.35 Lakhs.

If Somnath can increase the investments at the rate of 10% a year, the initial investment will come down to Rs. 51,000! That is quite a drop!

To ensure the actual retirement corpus at any point in time is close to the expected corpus, the robo tool recommends a variable asset allocation as the one shown below.

Starting with 60% equity exposure, Somnath can gradually taper down to about 36% at retirement and maintain that.

Suggested asset allocation schedule for Somnath to retire by age 55
Suggested asset allocation schedule for Somnath to retire by age 55

As the portfolio’s equity exposure decreases, so too do the expected net return from the portfolio. This is factored in from day one in the above calculation.

This is only one part of the retirement calculation. The second part is to determine how the corpus will be divided into buckets. A retirement bucket strategy refers to the way in which a retiree invests her corpus in different investments and tries to generate inflation-protected income.

The robo tool divides the retirement corpus into five buckets.  That is, the retirement corpus will be divided into five parts. This is only one of many ways to construct a bucket strategy. This assumes 40 years in retirement.

  • An emergency bucket to handle unexpected expenses. Example: 5%
  • Note: the overall equity allocation from the entire corpus is only 36% after retirement.
  • Income bucket that provides guaranteed income for the first 15 years in retirement. During this time, investments are made in the following three buckets.
  • Corpus from a low-Risk bucket that provides income from year 16 to year 25 in retirement. To provide this income, the low-risk bucket will have an asset allocation of 50% equity 50% debt during the investment period (years 1 to 15 of retirement). This corpus has a weight of about 20-25%.
  • Corpus from a medium risk bucket will provide income from year 26 to 33 in retirement. To provide this income, this bucket shall have an asset allocation of 70% equity and 30% debt during the investment period (year 1 to year 26). This corpus has a weight of about 15-17%.
  • Corpus from a high-risk bucket will provide income from years 34 to 40 in retirement. To provide this income, this bucket shall have an asset allocation of 100% equity during the investment period (year 1 to year 35). This corpus has a weight of about 10-15%.
  • During this investment period, the buckets will be actively managed to reduce risk: rebalancing and profit booking from one bucket to another. To understand how this works, try this: The Retirement Bucket Strategy Simulator.
  • After 15 years, the low-risk bucket will be turned into 100% debt and provide income for about 11 years. After that, the other buckets will also be progressively used. One can always customize this usage after retirement.
  • Please note that bucket allocations will change as per the user inputs, and auto-determined by the robo tool.

Will Somnath achieve financial freedom? Somnath and his wife have time on their side. With disciplined investing and disciplined risk management, they will be able to retire comfortably and fight inflation.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter with the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

Explore the site! Search among our 2000+ articles for information and insight!

About The Author

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, 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.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision-making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)