Retirement Planning: letter to a prospective client

Published: November 26, 2013 at 1:43 pm

Last Updated on

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.

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 retirement-copruslong you can remain financially independent.  Alternatively, to put it crudely, ‘how long your money would last’!

retirement coprus projections


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.

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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,



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.

Do share if you found this useful
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  1. 1. Yearly Expense of 3L with a corpus of 70L, which makes it a 23x amount. Putting aside some emergency money and insurance requirements will make it even lesser.
    2. The age of the person is 55 years, which means we are looking at 30-35 years survival period.

    In my honest opinion, this person does not have a sustainable withdrawal rate with his corpus and he will either have to extend his working years or decrease his withdrawal rate.
    It is better to avoid this client !

    1. I agree with you Ramesh. Unfortunately, both options, extending his working years and decreasing withdrawal rate, may not be possible. That is the challenge. Most people are unlikely to have a sustainable corpus.
      So the challenge is to stretch the corpus as much as possible. Of course beyond a point it is not possible, but one must try.
      The ‘bucket strategy’ is the only thing I know so far which can do this to a certain extent. The main issue is inflation.

      Expertise in this area is extremely low.

  2. I am talking about real life people, so mathematical things need to be even more conservative to account for human behavior. You are the math whiz, and you will be able to point out the probability by which that corpus can last for 35 years. My basic guess would be not more than 10%, which is totally unacceptable.

    I have serious issues with people trying to make financial plans with minimal expertise and blind projections over such long periods based on short term past history. After all, in our country, we only have 30-35 years of capital markets, which is too short a period of any reasonable guesses for the future.

    In this case, there is a real return of only 1-2% (and that too on an average). The volatility of that real return will kill the corpus much faster than would be expected.

    Most people do not realise the difference of real return and the nominal return (it is really difficult too).

    Coming to the problem, presently this person appears to have a shortfall of about 25-30% if all other factors are kept as they are. The only ways which I see this retirement corpus can work for a long period are:
    1. A net inflation effect of 5-6% rather than 8-9%. How? The inflation figure quoted above is the _net_average_ of many things and by managing the money in such a way so as to give a net average inflation of 5-6% has to be done on a personal level and it becomes very difficult to guide it from a third person view.
    2. A side job / income which will provide about 25-30% of his requirement on a sustainable basis (which means inflation proof).
    3. The role of annuities have to be considered as a major part. This alone will be able to help this person in the best manner in terms of sustenance of the corpus (rather than providing a CPI indexed income). However, the situation of annuities in our country is pathetic to say the least. There are not much reasonable options in this. I know only of HDFC Life which gives a (simple 5% indexed annuity), but the rates are unknown. No CPI indexed annuity, yet.

    1. Cannot agree more with you Ramesh. That is the trouble with the distribution, you cannot take more risk hoping for more return as volatility can kill the corpus. So a side job and keeping expenses down are the only realistic ways of going about it.

      Trouble is, health and qualifications can be a huge factor in deciding the quality of life.

      If we don’t have enough money, we should at least have health. Otherwise …

  3. the client’s corpus is mentioned. i presume , it could be only moving assets.he could have his residence. some FPs advise , in such cases, to use home equity. i.e. shifting to smaller , or staying on rent. the present expense may be lowered a little bit (at present cost) and it would help. of course , the remedies suggested are more valid.

  4. Informative article;if there’s a similar article for young persons starting their financial journey;please provide the link.thanks in advance.

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