Retirement Planning: My Story So Far

Freefincal has its origins in retirement calculators. For a long while, all I did was to make different variations of retirement sheets, input my numbers and stare at the results.  Soon I went on to make different inflation-protected income generators 

The idea here is to divide the retirement corpus into different buckets. Some buckets are fixed income instruments which provide income for immediate and near future and some are equity which are to provide income after 10Y or so.

Income ladders with FDs can be used to generate income for 5Y intervals and this income will grow at a pace equal to the expected inflation (8% or so is the typically used no).

Then followed the even lower stress retirement calculator

This was a combination of a standard retirement calculator with the inflation-protected income generator. Krishnan Muthusubramanium pointed out at FB group Asan Ideas for Wealth, the stress associated with retirement planning reduces significantly with this tool, only if  a reasonable corpus is already available.

It is then that I realized that I have never used this sheet with my data.  With the automated mutual fund and financial goal tracker, a standard retirement calculator is attached which auto-updates each time I refresh NAV.

Retirement-planning-7
This is a generic slide which depicts retirement planning. The purple line represents investments and the blue dots within the red cirles, inflation protected income

 

This is my updated retirement planning story .. so far.

I have been investing for retirement since Jan 2007 and so far I have focussed on investments only:

  • Have I managed to invest the necessary amount?
  • Have I managed to increase the investment amount by the necessary percentage (as assume in the calculator)

Although I have 60% equity and rest in NPS + PPF in mind, it took me a few years to get to this asset allocation.

The standard calculators told me that I will be able to retire by age 55 or so.  I did not mind too much as my slated retirement age is 65. A few years ago I took this number for granted. Today, considering everything, I will be surprised if I live that long. Anyway, the point is, I was not rattled by this 55 no. I love my job and I am not in any hurry to retire/quit. For the simple reason that I don't know what I will do with myself if I am not teaching.

Anyway, the point is, I was not rattled by this 55 no. I love my job and I am not in any hurry to retire/quit. For the simple reason that I don't know what I will do with myself if I am not teaching.

The following were the details and assumptions made with the even lower stress retirement calculator

  1. Inflation before and after retirement: 9%
  2. Return from equity: 12% (usually I use 10%, this time I choose to relax it a bit!. Assuming 10% will delay retirement by less than a year)

  3. Post-tax return from debt taxable: 9.5% from NPS assumed fully taxable at 30.9%. So 9.5%*(1-30.9%) =6.565%. I have assumed that NPS proceeds will be fully taxed. There is an argument that this is tax-free for government employees. I am assuming this is incorrect.

  4. Post-tax return from tax-free debt: 8% from PPF (invest very little here)

  5. If I retire before 60,  80% of my NPS corpus will be annuitized to provide some constant income. I have ignored this pension income. This is a considerable income. At current annuity rates will be equal to my present monthly expenses.

  6. Annual increase in monthly investment from now to retirement: 10%

  7. Equity allocation 60% and debt (NPS) allocation 40%. So net portfolio return is 12%(60%) +6.565%(40%) ~ 10%

  8. Current and future values of equity mutual fund, NPS and PPF are considered for retirement corpus calculation.

  9. The inflation-protected income was generated with the inputs used in this example assuming 25 years in retirement.

Result

For the kind of monthly investment I can currently manage, assuming I can do so in the near future, I can become financially independent in the next 8-9 years.

My current equity return is way above my expectations. If that continues for the next few years, 8/9 years will reduce significantly. I have also not considered the decent annuity I could receive.

This was a pleasant surprise to me.  I think for the kind of inflation levels that we have, achieving financial independence well before age 50 (and up to age 75)  is something to be happy about.

Of course, all this will change if there is another 2008 like scenario in the next few years.

Why did I share this?

I hope you do not perceive this post as an attempt to brag.  Although I admit that I am proud of this achievement, that is not my intention.

I am a first-generation equity investor and my salary levels are quite low compared to corporate standards for the kind of responsibilities that I handle.

When I started out, I had no net worth that I could all my own and in fact had debts to clear.

So much of this is because of MDBSC* (I do not use SIPs anymore to invest but make sure I invest enough each month)

Although we had our share of unexpected expenses, life was kind enough to allow us to invest systematically. Full credit to my wife for backing me up on this.

The reason I wanted to share this post is to point out that all this was done with no direct equity exposure (I do enjoy small dividends from Colgate-Palmolive but that is not included in the above).

My point is that it is not necessary.

Starting as early as possible, investing as much as possible. Those are the keys to investment success.

Direct equity and the associated stress is really not necessary. Although I have come to realize that it is not as difficult or as time-consuming as I thought it will be,  it is still not necessary. Mutual funds will get the job done with half the stress.

Many consider stocks as a way to compensate for not enough investing enough. Many see stocks as a short-cut to riches. Very few understand the associated risks. I have no doubt that direct equity has the potential to beat mutual funds. Just pointing out that not everyone can manage to do this.

Many people find retirement planning daunting and think that they can never pull it off. To them, I say that, a few years of MDBSC* plus a bit of encouragement from markets will lift our spirits. It is sure to get better with time.

Much of my gains from equity came because of the recent bull run. Prior to that, I was accumulating mutual fund units during the sideways market period.

When the markets picked up, I had enough capital in the market to boost my net worth.

Time in the market means nothing unless it implies (as much) capital (as possible) in the markets.

If I can get to this notional stage after about 8 years of investing, I am sure anyone can. All it takes is a bit of discipline with a desire to make our investible surplus work hard in productive instruments.

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44 thoughts on “Retirement Planning: My Story So Far

    1. Mahesh Jadhav

      As somewhere pointed out in Asan Ideas for Wealth, Pattu Sir has already wrote to much about how to catch fish (how to select MF) than to how to eat fish (giving selection about MF funds).

      It is best you explore this blog on the same line, you may find better opportunities.

      Rest is your call as personal finance is always personal and Unique.

      Regards,
      Mahesh

      Reply
    1. Mahesh Jadhav

      As somewhere pointed out in Asan Ideas for Wealth, Pattu Sir has already wrote to much about how to catch fish (how to select MF) than to how to eat fish (giving selection about MF funds).

      It is best you explore this blog on the same line, you may find better opportunities.

      Rest is your call as personal finance is always personal and Unique.

      Regards,
      Mahesh

      Reply
    1. freefincal

      You can use the financial plan creator for this if you are expecting rent. If you are intending to sell this, you can simply use current value and expected grow

      Reply
    1. freefincal

      You can use the financial plan creator for this if you are expecting rent. If you are intending to sell this, you can simply use current value and expected grow

      Reply
  1. Bharani

    Wonderful post Sir, mirrors my investment pattern!
    On a loosely related subject, I tried all your retirement calculators, and of course investment reqd is huge! The one major item proving difficult to keep up (it's just me) is annual inc %. A monster called lifestyle upgrade will definitely have impact on annual inc%. If inflation eats away annual salary increment with, say 9%, basically we stay in the same expense pattern! But in real-money terms, YoY expenses tend to increase more than 10% due to the lifestyle upgrade (eg: costlier dresses, more expensive restuarants) Funny pattern 🙂 Hence I always assume 5% annual inc in investment! Makes it all the more daunting 🙂
    Perhaps you should give latitude for the inevitable lifestyle upgrades, though it can't be expressed in numbers 🙂

    Reply
    1. venkat.v

      @Bharani
      if my salary increment is 10% and inflation is 8%, my wife and I consciously cut our spending by another 5-8% for that year.

      it is not that difficult. we started by trimming out internet, phone, cable, electricity and petrol bills.

      just saving 800 pm this way would give you 10k pa easily 🙂

      Reply
    2. freefincal

      I fully agree. I think we need to invest and then spend. These days I dont care about a monthly budget. I ensure the investments are in place. How the rest gets spent is then irrelevant!

      Reply
  2. Bharani

    Wonderful post Sir, mirrors my investment pattern!
    On a loosely related subject, I tried all your retirement calculators, and of course investment reqd is huge! The one major item proving difficult to keep up (it's just me) is annual inc %. A monster called lifestyle upgrade will definitely have impact on annual inc%. If inflation eats away annual salary increment with, say 9%, basically we stay in the same expense pattern! But in real-money terms, YoY expenses tend to increase more than 10% due to the lifestyle upgrade (eg: costlier dresses, more expensive restuarants) Funny pattern 🙂 Hence I always assume 5% annual inc in investment! Makes it all the more daunting 🙂
    Perhaps you should give latitude for the inevitable lifestyle upgrades, though it can't be expressed in numbers 🙂

    Reply
    1. venkat.v

      @Bharani
      if my salary increment is 10% and inflation is 8%, my wife and I consciously cut our spending by another 5-8% for that year.

      it is not that difficult. we started by trimming out internet, phone, cable, electricity and petrol bills.

      just saving 800 pm this way would give you 10k pa easily 🙂

      Reply
    2. freefincal

      I fully agree. I think we need to invest and then spend. These days I dont care about a monthly budget. I ensure the investments are in place. How the rest gets spent is then irrelevant!

      Reply
  3. Indra

    Hi Pattu - I have been following your blog for about three years now. This is a very inspirational post - thanks for sharing this. Just one question - and if you choose not to answer with specifics that is fine too - in these 8 years, (a) did you ever have to drawdown from your portfolio to meet something-other-than-goal expenses? or were those managed by emergency fund? (b) did you ever have to cut down on the investment amount per month due to exigencies , and (c) has your lifestyle remained the same in all these years or changed?

    Many thanks in advance
    Indra

    Reply
    1. freefincal

      Thank you.
      (a) Never had to withdraw. Thank god. Managed with emergency funds and cashless mediclaim
      (b) Yes I had to cut down last year when my mom was hospitalized but I compensated after a few months.
      (c) Lifestyle has not changed much. I dont use smartphones just a low end mobile. Dont have car. Medical expenses have changed my lifestyle though.

      Reply
  4. Indra

    Hi Pattu - I have been following your blog for about three years now. This is a very inspirational post - thanks for sharing this. Just one question - and if you choose not to answer with specifics that is fine too - in these 8 years, (a) did you ever have to drawdown from your portfolio to meet something-other-than-goal expenses? or were those managed by emergency fund? (b) did you ever have to cut down on the investment amount per month due to exigencies , and (c) has your lifestyle remained the same in all these years or changed?

    Many thanks in advance
    Indra

    Reply
    1. freefincal

      Thank you.
      (a) Never had to withdraw. Thank god. Managed with emergency funds and cashless mediclaim
      (b) Yes I had to cut down last year when my mom was hospitalized but I compensated after a few months.
      (c) Lifestyle has not changed much. I dont use smartphones just a low end mobile. Dont have car. Medical expenses have changed my lifestyle though.

      Reply
  5. sundararajan

    First , thank you for sharing your experience. After reading this line
    I think for the kind of inflation levels that we have, achieving financial independence well before age 50 (and up to age 75) is something to be happy about.

    One word is phenomenal. Hats off to you. It is not at all easy to attain financial freedom at this age working for an Indian government. I assume that you may have place to live already. Buying a place to live is a very big expense in any big cities in India now. But with your normal living and planned investing, you are doing great.

    I know and understand that you / we are on one of the exceptional bull run ever in any stock market (thanks to numerous QE by several governments) . And you started at right time (more or less) and not every one is fortunate.
    I have a question, in one of the bucket calculators, you mentioned to realign the buckets if the actual gain is is more than the expected gain. Did you do that? or Have you not done any realignment and all of them in the same MFs till now?
    This may help others (like me), when to move the funds to other buckets esp in a bull run like this. If you have moved, what is the triggering point to shift the money to different buckets? If you can, please share with us. Thanks

    Reply
    1. freefincal

      Thank you. Yes I live in an ancestral property (a flat built by selling a mansion many years ago by my dad) That make a difference as I did not have EMI burden.
      I started during the 2008 crash. So I had to hang in there for close to 5 years.
      The bucket strategy is after retirement and does not apply to me now. I have pretty much used the same mfs all these years.
      Managing the buckets after retirement has to be quite personalized.

      Reply
  6. sundararajan

    First , thank you for sharing your experience. After reading this line
    I think for the kind of inflation levels that we have, achieving financial independence well before age 50 (and up to age 75) is something to be happy about.

    One word is phenomenal. Hats off to you. It is not at all easy to attain financial freedom at this age working for an Indian government. I assume that you may have place to live already. Buying a place to live is a very big expense in any big cities in India now. But with your normal living and planned investing, you are doing great.

    I know and understand that you / we are on one of the exceptional bull run ever in any stock market (thanks to numerous QE by several governments) . And you started at right time (more or less) and not every one is fortunate.
    I have a question, in one of the bucket calculators, you mentioned to realign the buckets if the actual gain is is more than the expected gain. Did you do that? or Have you not done any realignment and all of them in the same MFs till now?
    This may help others (like me), when to move the funds to other buckets esp in a bull run like this. If you have moved, what is the triggering point to shift the money to different buckets? If you can, please share with us. Thanks

    Reply
    1. freefincal

      Thank you. Yes I live in an ancestral property (a flat built by selling a mansion many years ago by my dad) That make a difference as I did not have EMI burden.
      I started during the 2008 crash. So I had to hang in there for close to 5 years.
      The bucket strategy is after retirement and does not apply to me now. I have pretty much used the same mfs all these years.
      Managing the buckets after retirement has to be quite personalized.

      Reply
  7. Sharan

    Hi Pattu sir,

    As pointed out in many of the comments, it is a very inspirational post. I too started investing in MFs from 2008 and could relate a lot to your journey - first gen investor in MFs and from zero net worth 🙂

    I appreciate your passionate posts and efforts.

    -Sharan

    Reply
  8. Sharan

    Hi Pattu sir,

    As pointed out in many of the comments, it is a very inspirational post. I too started investing in MFs from 2008 and could relate a lot to your journey - first gen investor in MFs and from zero net worth 🙂

    I appreciate your passionate posts and efforts.

    -Sharan

    Reply
  9. Jayan

    Dear Sir
    I spend all of my day today on your website 🙂
    Hats off to you for your passion and the lucid explanations in your posts!
    I am looking for tool plan for retirement and arrive at how much to put aside monthly and after going through the various excel sheets I'm a bit confused.
    Just to be sure, is the "integrated-Financial-planner-Dec-2014" the file to work with?
    Thanks
    Jayan

    Reply
  10. Jayan

    Dear Sir
    I spend all of my day today on your website 🙂
    Hats off to you for your passion and the lucid explanations in your posts!
    I am looking for tool plan for retirement and arrive at how much to put aside monthly and after going through the various excel sheets I'm a bit confused.
    Just to be sure, is the "integrated-Financial-planner-Dec-2014" the file to work with?
    Thanks
    Jayan

    Reply

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