Last Updated on April 22, 2016 at 8:02 pm
Nandish Desai and Manish Chauhan run Jagoadvisor – a portal for financial advisors. Recently, they posed the following retirement planning challenge,
Scenario: ‘You meet a 55 year old with a corpus of Rs. 70 lakhs. The person seeks financial independence in retirement and expects an annual inflation of about 8-9%. He would like to invest the corpus in a financial product that will give 8-10% return over the long term. His present expenses are about Rs. 25,000 per month.’
Task: Write a 1-2 page report that will provide some projections on how long his corpus would last and convince the person to become your client!
Retirement planning is one of the most exciting and challenging tasks in personal finance: how do you make a corpus last the lifetime of a retiree while ensuring financial independence? By financial independence I am referring to a retirement income (call it pension or annuity, if you must) that matches inflation.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
The other aspect to this challenge is the tone of the letter. How should a planner pitch it? How should/will a client interpret it?
Both aspects are of interest to the investor and financial planner alike.
In the hope you will agree that this challenge is interesting food for thought for everyone, I share below my response to the challenge.
~~~~~~~~~~~~~~~~~~~~~
Dear intelligent investor,
In our last meeting, you had indicated your return expectation on your corpus and the kind of inflationary increase on your expenses.
In this report, I would like to answer an important question in your mind,
‘which financial product should I invest in so that I can be financial independent at least until the time-frame I have mind?’
First, let us consider some simplistic projections on how 
These results were obtained with a ‘how long will my money last? calculator
Do not let these numbers bother you too much. The bottom line is, the more the inflation, the more risk you need to take while investing.
I call these results simplistic because, while we would like to assume inflation as 8%, the real inflation on certain products can be much, much more. Similarly, returns may not meet our expectations.
Therefore, I hope you agree with me that a retirement plan should be flexible.
First, I would request you to think about the ideal time-frame that you would like the corpus to last. To do this, please consider how long your elders lived, your health condition, family history etc. If you have a spouse, you will need to worry about her financial health if you pass away early.
Therefore, the ideal time-frame should be the life expectancy of the younger spouse.
I know this is not a pleasant thing to think about. However, to achieve financial independence, I strongly believe one must have to think about unpleasant things in order to be better prepared.
Now, if you have an approximate time-frame in mind, what next?
If you would like to know, ‘which financial product should I invest in so that I can be financial independent at least until the time-frame I havemind?’ my answer to that (assuming you are interested in hearing it! J) would be in two parts.
Part 1: As you are well aware, monthly expenses is only one part of a person/families total expense.
a) We will need to account for emergencies like appliances breaking down, AMC charges etc.
b) Health insurance.
c) A fund to handle medical cost not covered by mediclaim.
Part 2:
Once the items listed in part 1 are, covered one should worry about how to manage the corpus to yield a monthly pension.
It is quite possible that a part of your 70 lakh corpus may be needed to account take of your emergency fund, health insurance and medical corpus. After that, you could consider how to invest the rest of the corpus.
I will be happy to discuss ways to take care of these needs with reasonable assumptions. We can also consider other issues like the kind of estate that you would like to leave to your loved ones.
Now we are ready to discuss your question (sorry for the delay, retirement planning is a many-sided problem!)
‘which financial product should I invest in so that I can be financial independent at least until the time-frame I have mind?’
Forgive me for answering your question with a set of questions!
- On an average, do you expect a human beings life to follow a straight line?
- Would you not agree that on an average a human life would have many twists and turns?
- Should not a retirement plan be flexible?
- Should it not adapt, as best as it can, to changes in your lifestyle as you age?For example, sudden surge in inflation, medical expenses etc.
- Should we adopt an inflexible retirement plan by investing in a single product?
- Or should we invest in a basket of investments with vary risk and reward profiles so that we can to pretty much most things life throws us at?
If you see what I mean and agree that this is something worth pondering about, feel free to contact me to set up a meeting with no financial obligation.
In this meeting,
- I will present to you different ways in which a retirement corpus can be invested. Rest assured in all scenarios, I would keep in mind the importance of this corpus to your financial independence.
- I will explain how by choosing a basket of instruments that range from virtually zero risk to minimal risk, we work your corpus to the maximum extent possible to provide you with financial independence.
- With active monitoring from both of us, I am confident that you will be well prepared for the vicissitudes of retirement life.
- May I urge you appreciate the fallacy of searching for a single retirement product, and consider the investment scenarios that I would like to present to you?
Thank you for your time.
With best regards,
pattu
~~~~~~~~~~~~~~~~~~~~~
How will you respond to this challenge?
How would you allocate the corpus to ensure financial independence?
If you were the prospective client, how will you react to this letter?
If you are a planner, I will be happy to know your impressions.
If you wish to get serious about your retirement, here is a set of retirement planning calculators for all ages.
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News.
Explore 1,400+ videos on YouTube!
Subscribe to get posts via email!
Join 32,000+ readers and get free money management solutions delivered to your inbox! (Link takes you to our email sign-up form)Join our WhatsApp Channel
Explore our products
🔥Join our community of 9000+ users! 🔥- Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
- Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 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 the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
- Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle.
- Increase your income by getting people to pay for your skills! More than 900 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 seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
- Portfolio Tracker! Track your mutual funds and stock investments with our Google Sheet!
- We also publish monthly screeners for
Our Podcast: Let's Get Rich With Pattu
On Spotify: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! On Audible: Listen to the Let's Get Rich with Pattu Podcast
Listen to the Let's Get Rich With Pattu podcast on YouTube.
Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
- Dr 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 14 years of experience publishing news analysis, research and financial product development. He has over 28 years of teaching and research experience. He is also a public speaker and keynote presenter.
- He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
- Connect with him via @pattufreefincal on X LinkedIn YouTube
- Pattabiraman has co-authored three print books.
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
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 a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation 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: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Our publications
- Your Ultimate Guide to Travel. This is an in-depth exploration of vacation planning, including how to find affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)
- How to profit from content writing: Our ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!