Retirement income framework – understand the allocation

I get a lot of queries in my blog and Facebook group about how to structure a corpus so that the retired person gets enough monthly income in retirement. Most of these people have a home and are not really extravagant in their spending. Ideally they would like to have regular monthly income with a degree of safety attached to it.

I have written earlier that a combination of Debt, Equity and Stocks should be the way to go for all stages of life, with the provision that the proportion changes in favour of debt as you grow older. However, there are many people who are worried about the volatility in the markets and clearly uncomfortable in a scenario where they might have to withdraw money in a declining market. At the same time, a debt only portfolio will work if the corpus is large enough to deal with inflation over a period of 3 decades.

Let us simplify it then in terms of different scenarios. The first scenario is where you only want to have Debt in your portfolio:-

  • Assume an annual expenditure of 8 lacs per year
  • Retirement period of 30 years conservatively
  • Real return from portfolio is zero as Returns match inflation
  • Corpus needed will be 2.4 crores
  • Rough assumption is that expenses will double every 10 years.

So you can see from here, if you have 2.4 crores corpus you can withdraw 8 lacs every year and not worry at all about markets and equity etc. But what if you do not have 2.4 crores but only 2 crores. How does that change the situation? Let us see below:-

  • Assume same expenses and longevity as in the first scenario.
  • Put 20 years amount into Debt and the rest in Equity.
  • So we have 160 lacs in Debt and 40 lacs in equity.
  • Assume that inflation makes expenses rise by 100 % in 10 years.
  • Assume equity returns of 15 % annually.
  • The Debt investment will be adequate for first 20 years.
  • The Equity part will become 654 lacs in 20 years at 15 %
  • Even if you take 12 % return on equity, the amount in 20 years will be 386 lacs.
  • Annual expenses after 20 years will be 32 lacs per year
  • So 10 year costs are 320 lacs.

As you can see the trick is to let Equity grow for a long time so that the differential return when compared to inflation really works to your advantage.

I hope with this you will be able to get your own situation in retirement mapped out. The basic idea is to deal with Debt in the first decade or two and have access to equity money for later on. Yes, if you have enough in Debt then you probably do not need a lot of equity allocation. Let us now look at the general formula then.

  • Expense of X lacs per year and longevity of Y years
  • You can be in pure debt if corpus available with you is more than XY lacs
  • If you have less than XY lacs then your allocation must be between Debt and Equity.
  • In general with a corpus of 75 % of XY lacs you should be all right.
  • Assumption is that your Equity portfolio grows at 12 % to 15 % long term and inflation is such that your expenses double in 10 years ( roughly 7.2 % )

All that you really need to do now is to plug in your values and check out the allocation required for a rich and productive retirement. I will do another post this week on specific portfolios and withdrawal strategies for 2 different levels of corpus.


Khajuraho – offbeat and mesmerising

When one has travelled as much as I have, it becomes quite commonplace to plan for new travel destinations and one may get a sense of, “been there, done that”. Khajuraho was quite different though as it was something both Lipi and I wanted to do for a long time. Now that we are done with the trip, I can only say that it met our expectations in full measure. For those interested in going there this post will be helpful.

Coming to the actual travel, we started on 20th February morning from our home in Hyderabad. The short ride to the airport is always exhilarating in the morning on the ORR expressway. Hyderabad airport is now crowded at most times but, as regular travellers, we have now learnt to take these in our stride. Once we were through the Security check, we headed towards our oasis in the airport – the Plaza Premium lounge. this provides relative serenity in the hustle and bustle of the airport as well as great food options at most times of the day. Fortified by the breakfast, we boarded the flight and did what we normally do – Lipi catching up with her sleep and me with my reading. We made a short stopover at Noida at my mother-in-law’s place and had a great lunch there. She also insisted on packing some dinner for us which came in rather handy later on.

Our train journey by the UP Sampark Kranti Express was uneventful but we were privy to some rather interesting conversation on Khajuraho, courtesy some local people who were travelling with us. When I woke up it was rather dark and the feeling I had of closing in on our destination was quite thrilling. The train reached Khajuraho station fairly early in the morning and just as we came outside we were accosted by a person named Jainam who wanted us to get into his car to reach our hotel. Though I did not have much faith in the sheet of paper that he proffered, 200 Rs seemed a reasonable fare and we set off. The journey by car was short and we saw the two airports, national and international, on our way. The road leading to our hotel Isabel Palace was a dusty one and I started wondering as to whether we had made a good choice of the hotel. However, the interiors were quite good and we were given a room immediately even though it wasn’t 8 in the morning yet.

The hotel had a fixed menu breakfast on the terrace. You could view the Vindhya hills at a distance and paddy fields up close. The 360 degree view along with the tasty Indian breakfast of stuffed parathas and pooris started our day on the right note. We had worked out a deal with our guide cum driver Jainam and soon set out to see the star attraction of the trip, namely the temples of the Western group first. It was only a short drive from the hotel, in Khajuraho most distances are short. The immediate road stretch in front of the temple complex has been cordoned off for vehicular traffic and this is a good step. Tickets were cheap but the official Guides really expensive. We still got one as it is always good to hear from them and it proved to be a good decision. Apart from giving up the details of temples and the sculptures he also doubled up as our official photographer for the day and snapped quite a few pictures of Lipi and me. This was nice as we normally end every travel nowadays with very few pics of us together.

The Western temple complex has most of the temples standing today and is really the UNESCO world heritage site. The temples are all in pretty good shape and have been restored well where needed, the landscaped gardens look beautiful and due to the lack of massive crowds you can set your own pace. We started with the Lakshmana Temple which is dedicated to Vishnu and has a few smaller temples in front of it. The Varaha Temple, dedicated to the third incarnation of Vishnu as a wild Boar is small but has a huge statue of a Boar which is rather impressive. The carvings along the Lakshmana temple contain a lot of erotic sculpture for which Khajuraho is widely known. While these are rather explicitly depicted, the overall numbers would probably be less than 10 %. Also, the sculptures are really about everyday life and it seems that sex was dealt with and spoken of quite openly during the times the temples were built.

About 200 metres from the Lakshmana temple is the most famous temple of Khajuraho and easily the most majestic one in structure and stature. My memories of it stretched long back to my school days when I read about it in my Cultural history classes and was quite impressed by it. In real life it was even more impressive than what my imagination had allowed for. The Jagdambika temple next to it is on the same raised platform and the duo clearly dominate the Western complex. Just going around the temples and staring up at the rising Shikaras will inspire you with awe. Add to it the richly carved panels with the intricate sculptures and you realise the extent of the artistic and human endeavour that went into creating these masterpieces. Muslim invasion had desecrated the shines but even those callous souls probably could not bring themselves to destroy such beauty.

The rest of the temples were nice too, the Chitragupta temple and the Vishvanath temple being noteworthy. The Dance festival has the Chitragupta temple as it’s fantastic background and we witnessed that in the evening. After the Western group we went to the Southern temples and the Eastern Jain ones. While these were quite impressive too and the Chaturvuja temple was unique in the statue of Vishnu with 4 heads. The Jain temple complex was really serene and nice though architecturally not so striking maybe. The temples done we proceeded to have lunch at Agarwal’s which was a great vegetarian restaurant and had a variety of Thali’s and other fares to choose from. The simple thali we chose turned out to be quite sumptuous and rounded off the morning experience.

After some rest at the hotel we were back to the temple complex in the evening. We first went to the only temple in Khajuraho where worship is prevalent and saw the 9 feet Shiva lingam made of sandstone, glistening due to all the polish it has got over the years. The evening Arathi was just starting as we came down the steps and the music with the chanting along with all the devotees clapping to it was a heady mix. Next stop was the Khajuraho Dance festival which was really more of a Fair. There were stalls put up from different states with all kinds of textiles and handicrafts, there were food stalls ans an Art Mart featuring work of many artistes. The Dance stage was impressive and had the Chitragupta temple as it’s beautiful backdrop. We saw three performances of Bharat Natyam, Kathak and Manipuri dances and each one held our attention completely. The entire experience was a surreal one and exceeded all expectations that I had of it. If you are a lover of art and culture, you must visit Khajuraho dance festival at least once.

Dinner was at well known Rajah Cafe run by a Swiss. We had some chicken Brochette which was quite good along with another chicken dish with Rotis. After a restful night we were off the next day on nature trail. First stop was Ken Ghariyal Sanctuary which has some wild life and apparently a lot of crocodiles. Even though we did not see any crocodiles there, the views of the Ken river and the different small lakes that it forms within the sanctuary were hugely worth it. Lipi did not want to climb the watch tower but I decided to test my fitness by doing so and was rewarded by some great views. The Raneh falls did not have any waterfall as the monsoons last year had been almost absent. However, this allowed us to see the Canyon properly and the sheer scale, variety, colour and arrangement of the rocks were truly remarkable. Quite possibly the only place in India where you would get to see this. After lunch we were at the Panna Tiger reserve in a Gypsy and with a very knowledgeable Guide. Panna is uniquely beautiful due to the Ken river that runs through it. This also has several alligators and crocodiles along with a host of water birds. We saw Herons, Kingfishers, Storks, Cormorants and Peacocks just to name a few. Deer of different types were in abundance starting with Nilgai, Sambar, Barking deer, spotted dear, Barasinghas etc. It was a great sight to see a couple of young deer in full flight with both feet off the air. Though we heard some people seeing the tigress and two cubs and waited patiently on a long vigil by the Ken river, the tiger eluded us. The whole park experience was rather nice though and catching the sunset as we were exiting the park was really the icing on the cake. The long drive back and the exhausting day necessitated an early dinner and we were off to sleep quickly.

The final day was reserved for Museums but unfortunately two of these were closed for the day. We did get to see the Tribal museum which had some really nice stuff in terms of paintings and handicrafts along with implements of day to day use of the tribal’s. Lipi went off to buy some souvenirs from the market while I took another look at the Western group of Temples in order to look at some sculptures closely. Another sumptuous vegetarian lunch followed and we were back to Khajuraho station soon. The station facade is in the shape of a temple and is apt for the place.

The train journey back was good as we met an old couple who have been coming to Khajuraho for several years and it was nice of them to share some of their dinner with us. Next day we stopped by Lipi’s place once more and made it to Hyderabad in the evening. It has been a great trip that had everything – culture, heritage, nature, wild life all rolled into one.

We are looking forward to the next trip in a few days time – complete change of setting as we will go to Goa now.

A travel plan for Khajuraho

I am passionate about many things in life, but if I had to choose one it would definitely be travel. Over the years we have travelled to a lot of different destinations, both inside and out of India. I always look forward to a new year thinking of the new places we may get to visit or the old ones where we may rediscover new experiences. In 2018, one of the places I had on my radar was Khajuraho and I am happy that we are going there this week.

Planning for travel is one of the activities I truly enjoy and, over the years, I have got pretty good at it. This time, the idea of a Khajuraho visit came to me in January. My mother-in-law, who is normally with us in December and January to avoid the Delhi winters, was leaving on 11th February and our daughter Rinki was coming back home after completing her BM program at XLRI on 27th. So we really had to go in the intervening period. What really sealed the deal for me was seeing the news of the Khajuraho Dance festival being held this year between 20th and 22nd February. I am a great fan of all types of Indian cultural performances and one of my great joys was to watch the dancers perform in the Mamallapuram Dance festival when we were in Chennai. The Khajuraho dance festival seemed like the perfect occasion to visit there.

Life today has got much easier due to the amount of information present on the internet, especially if you know how to search for it well. I normally start by reading up on the place first to get a general sense of the location, transport options, sightseeing options etc. Next, I search for any travel blogs written about the place and also the itineraries by different tour operators. This gives me a rather good idea about how many days we will need at the place, travel options to reach there, food and stay options. Once I am clear on these I plan my itinerary and check on the dates, travel options and bookings.

Here is how I planned for Khajuraho:-

  • Based on my readings I decided that 3 days will be enough to visit the Khajuraho temple complexes, view performances at the dance festival as well as go for a half day safari to Panna national park.
  • From Hyderabad the logical way to travel will be through Bhopal or Jabalpur. However, both involved long train journeys and expensive flight tickets with not very convenient timing. It did not make sense to travel 2 days for a 3 day trip.
  • As there was a good night train between Delhi and Khajuraho, I decided to do the unusual and go through Delhi, despite it not making geographical sense.
  • I booked the tickets for the train both ways first and then looked at the flight options. As I was having some flexibility of dates, courtesy some stay options in Delhi for night stays if needed, I was able to get tickets at great prices.
  • Next step was to book accommodation for 2 nights in Khajuraho. I looked at Trivago site to get a good deal from
  • Final step was to book the evening safari at Panna national park through the online facility in the MP government site. This is a great option as you can do things directly yourself without getting entangled with touts etc. 

Now finally for the costs:-

  • Train costs were 1920 Rs for onward journey in AC 3 Tier and 2720 Rs for the return journey in AC 2 Tier.
  • Flight costs were 9800 Rs for both legs of the journey 🙂
  • Hotel cost for 2 nights was about 4200 Rs.
  • Safari permits were 520 Rs, Jeep and Guide costs will come to another 700 Rs or so.
  • Food, taxis and incidental expenses will be in the range of another 7000 Rs or so.

So at an overall cost of 27000 Rs or thereabouts we are leaving for a reasonably comfortable trip to a long awaited destination. Must say that I am feeling quite kicked about it.

Retirement planning – dynamics of time and activities

Of late, I have been doing a lot of reading on the topic of retirement planning. I must say that, while there has been a certain level of interest about retirement issues in India now, much of the good inputs come from the US, where this has been a topic of great interest over several decades. One of the areas most of the financial community there agree on is the need to structure your decades of retirement by activity levels. In this post I will try to suggest a framework, we can adopt to our context in India.

One of the important differences between US and India that we need to keep in mind is the age of retirement and life expectancy. Many people in the US work till the age of 65 and consider they will live till 90. In the Indian context, it will make sense to look at these figures at 55 and 85 respectively. Yes, I know many people retire at 60, but with the focus on shorter career spans along with many wanting to look at doing other things, 55 will be a good age to aim for. Moreover, with the passage of time, more people are going to have non-traditional careers where the working in regular jobs will have shorter life span. The other aspect is life expectancy – I feel with the current state of medical advances, it will be logical to take 85 as the figure. Again, it is possible to live beyond that and you must factor that into your plan. In the end however, a 30 year retirement period which you need to plan for and fund will probably do the trick.

Ok having established the above, let us now turn to a framework of the 3 decades. I will follow the terminology from an US blogger. He calls the first decade to be the Go-Go decade, where you are going to be quite active. This is the time to catch up on all the family visits, travel the world, organise your monetary and other affairs, spend time with your adult children and to indulge in the hobbies and interests for which you may not have had much time during your working life. The second decade is termed as the Slow-Go decade, where you still do much of the earlier stuff, health permitting, but there is a palpable slowing down in both the numbers and frequency of activities. The final decade is termed as the No-Go decade where you will mostly be indoors with limited activities.

If we adopt this framework to the Indian context, how will things look? I can think of the following for the first decade, in terms of the situation and the activities:-

  • You will still be actively engaged in some professional activities but not a regular job any more.
  • Your income will mainly come from passive category with some active income.
  • It is likely that your children are into their careers now or at least finishing up their post graduate education. 
  • They will also possibly get married in this decade of your life.
  • With time and hopefully money in your hands, you can look at travelling much more than you have done earlier.
  • You may want to replace some assets such as cars or white goods.
  • You can also indulge in your hobbies and interests in a more significant manner. If these are outdoor in nature, this is obviously the best decade to do so.
  • You will settle down in your home town or your place of retirement during this decade. Catching up with friends and family there will be a good part of leisure.

In the second decade, the professional activities will probably cease. Your outdoor aspects such as travel or any active sports will also taper off gradually. While you will still be healthy ( hopefully ), you will not be too inclined to venture out of home. This will probably be a time to view movies in home theatre as opposed to the cinemas and to order food in as opposed to driving out to a restaurant.

In the third decade when you are 75 plus, it is very unlikely that you will engage in a lot of activities that require a lot of physical exertion. Yes, it will still be important to do regular exercises, but your travels and other outings reduce drastically. Visits to the doctor are, unfortunately, going to increase in frequency. We can look at this decade as the winding down phase, where you should take care of your affairs, rest as much as you need to and hope that the passing away, when it happens, is a relatively smooth affair.

What happens if you live longer than you have estimated? We need to understand that this is possible, given that many people are living well into their 90’s nowadays. While you will either be almost inactive, if not in some long term care facility, there is clearly a need to plan for this financially. The last thing you need at this stage of life is to worry about money or being dependent on your children when you are at your most vulnerable. Any financial plan should include a final 5 years for you and your spouse.

Once you have chalked up your road map, we can start to put a financial dimension to it. This should be done in a bottom up manner, by understanding your lifestyle and then working out the relevant cash flows needed in the 3 decades. This is conceptually a little difficult and I will explain with a personal example in the next post.

Revisiting my life plan

The end of the year is normally a good time to assess how your life is going on and how is it likely to look in the future. In the last few days, I have given some thought to it and have decided that there may be a few changes to what I had considered 3 years back, when I had started in my Financially independent ( FI ) state. Let me share it in this post.

As you would have read in several posts, I am in an FI state, thereby not really needing any active income to take care of my expenditure. However, I have a Management Consultancy practice and earn active income out of it. Much of it currently goes into investments. While I can continue with my consultancy practice for the next few years, I am thinking of a few other areas where I can spend my time professionally. The first of these is a business venture, which I have thought of seriously over the last year. It is a fairly interesting concept and does not need too much funding. However, it needs a group of founding investors as anchor and I am thinking of some active work in this area from now on. It will probably take another 1-2 years to take off but the effort of getting the team together and kicking it off has to start. The second area is to invest actively in the stock market in a serious manner. Now, while my stock and MF portfolio is of fair value, I do not actively buy and sell in the market. With more time in my hands this is something I plan to look at. The third area will be to monetise the blog or write on topics which are of interest to me.

Depending on how the above things go, I am probably looking at being actively involved  in work, as we know it, for the next 5-7 years or so. Beyond that, my own estimate is that I will live for another 25 years, where I do not have any vocation, only my hobbies and interests to keep me busy. Not that I have ignored my hobbies or interests otherwise, in fact I have generally been happy about the work life balance I have been able to achieve.

One important factor to consider is where will we be living. As of now, we are in Hyderabad and there are really two options that I am considering. The first, is to continue being here for the next 2-3 years. The other option is to look at a shift to Kolkata in the next calendar year. The flip side to that may be the opportunities available for my consultancy, should I decide to continue it. Long term plan will be to shift to Kolkata anyway. Even though we have an apartment in Chennai, we do not plan to go there as the climate does not really suit us. Of course, another consideration in Kolkata will be whether we should own a place or rent it. More of this in another post, but if long term rent options are available, I will prefer it to buying a place.

All Indian families have their children as a key consideration and we are no different in this regard. Fortunately for us, both our children are well on their way to getting settled in life. My daughter Rinki is an Engineer from BITS Hyderabad and is presently pursuing her MBA from XLRI. She will complete her course in March 2018 and is likely to get a job of her liking in some company. My son Ronju is doing a dual degree course in Msc Maths and BE Computer Science from BITS Goa. He will complete his course work in May 2018, though there will be mandatory internships of 1 year. Of course, he may decide to do a PG course later on but that is a future issue. In the meantime, it is unlikely that our children will stay in the same city as us. As far as their marriages go, we will live it to them for deciding the time and partner. We will fund the wedding expenses and I am keeping a separate track of it.

What will be the key activities that we will engage in? Well, travel within and outside India is a passion that both Lipi and I share and in the next 10 years we will do that a lot. Our other interests in movies, cultural events, dining, sports etc are also likely to keep us busy in the first decade. Over the next decade, it is very likely that our going out will reduce considerably and we will have more indoor activities such as reading, tv and hopefully some family time with our children. Health is something we are reasonably all right with so far and hopefully we will not have any major mishaps along the way.

So far so good – what will be the cash inflows required to get these funded? Do I have the requisite financial assets to take care of this life plan? I will attempt to answer these questions in the next post.


Retirement corpus needed is a function of real returns

In an earlier post, I had written about how our lifestyle choices in retirement will influence the amount of retirement corpus we need to start our retired life with. I also wanted to write a post with my personal example but, with some other engagements, I have not been able to get down to it. I hope to do it this weekend.

The retirement corpus is also a function of the real rate of return you are able to get. For those who are unaware of the term, the real rate of return is the difference between your return on investments and inflation. So if your portfolio is giving an overall return of 9 % and the inflation in the economy is 7 %, then your real rate of return is 2 %. In one of my earlier posts, I had shown a simple way to calculate a retirement corpus by assuming the real rate of return as zero. Interested people can read the post here.

So in order to recap that post, if you are retiring at any age and have X years to live with an annual expense of Y, then your retirement corpus needed will be XY. For example, I think I will live for 30 years max and my annual expenses may be in the range of 12 lacs per year. According to the formula XY, I will therefore need 3.6 crores. Note that this assumes two things – firstly, my money will only grow at the rate of inflation and, secondly, I will not have any corpus left when I finish the 30 years.

Now, I may not be lucky to have this amount. In this case, I can simply keep trying to earn some active income, hope to get a lottery or depend on my children to tide by my later years. As I do not fancy any of these strategies another option can be to reduce my spending. For example, if I can somehow do with an annual expenditure of 8 lacs then the corpus needed is only 2.4 crores. However, this will now compromise with the lifestyle I want to have, especially in the area of travel. Fortunately, there is a way out of this and I will show you how to do it.

The trick is in organising your money in such a manner that you have some real rate of return. Let us say, I use debt MF and hybrid funds to increase my returns to 8 % and inflation rate for me is 6 %. With this real return of 2 %, it will be quite possible to have a significantly lower corpus retirement. There are calculators available in the public domain which you can use so I am not getting into that. However, here are the outcomes.

Assuming 30 years to live and 12 lacs per year as the annual expense:-

  • With a real return of 0 %, corpus needed is 3.6 crores.
  • With a real return of 1 %, corpus needed is 3.28 crores.
  • With a real return of 2 %, corpus needed is 2.83 crores.
  • With a real return of 3 %, corpus needed is 2.46 crores.

I can go on but you get the point. The idea therefore will be to organise my money to generate a decent level of RRR so that even with a lower corpus there is a chance I get to lead the lifestyle in retirement that I am desirous of. The flip side is this – to generate high RRR, I will need to take more risks in my money and definitely put some of it in equity. This is fine with me as my basic 3 portfolios of Debt, MF and Stocks are something I am quite comfortable with. If you are not fine with the risks you can only deal with RRR of 1 % or so. In that case you will need a higher corpus, a lower annual expenditure or hopefully a pension from the company where you work now.

I will write some more posts on retirement, follow the blog to get those.

Cash outflow in retirement is a function of lifestyle

Over the years I have planned my financial independence, where I would have no need for an active income. This entailed creating the 3 portfolios of Debt, MF and stocks. If you are interested you can search my blog to read about my financial planning, there are quite a few posts on it. The important thing to understand here is that for me and anyone else, the amount of money needed in retirement will be a function of the lifestyle you want to lead. 

For example, you can say that you just want to have a simple lifestyle in your home town without too many activities such as entertainment, dining out or travel. In this case, your expenses are likely to be reasonably controlled and maybe a figure of 6 lacs in current prices will suffice annually. On the other hand you may be a person who wants to have a vacation abroad every year, visit your children once in 6 months, have a car and driver to take you places etc. In such a scenario even 15 lacs per year may not be adequate.

So how do you go about estimating the kind of cash flows you would need in order to be able to have the lifestyle you want? One of the major assumptions I will make here is that your retirement period is 3 decades. Since most of the people retiring today are unlikely to do so before they reach 50 and almost many will look at 60 years or close by, this is a reasonable assumption. The mistake most people make is that they feel the expenses will be constant over the period of these 3 decades. In fact many people I know spend less initially as they are worried about inflation and their money running out.

If you look at this in a logical manner, you will probably do far more activities in the first of the three decades. Let us say you have retired at 55 years – now till you are 65, you will probably be in good health and therefore be in a great position to indulge in your hobbies and passions. The second decade will definitely see a reduction in the physical activities, for example your frequency of travel will reduce significantly. The third and final decade will probably see very little activity outside home.

Now, if we have to provide a framework for all the cost elements that are required to be funded in retirement, it will probably look like this :-

  • Accommodation : Most people having their own house or apartment will need to have maintenance costs. Even if you are having a property somewhere and can fund your accommodation expenses through it’s rent, you are in good shape. In case you need to rent that will prove progressively more expensive with each year and therefore need a fair amount of assets.
  • Running costs : These include daily living costs such as food, help expenses, utilities, maintenance, entertainment, clothing etc
  • Insurance : Term insurance should be junked in retirement and you need to have Medical and home insurance for as much as you can possibly afford.
  • Asset replacement : You will need to replace some furniture, quite possibly several white goods and also your car, once or more in these 3 decades. It is best to be prepared for it, very often we do not take it into account.
  • Children related : I hope the higher education of the children and maybe marriages are over by the time you retire. Even if they are not, you need to keep a separate fund for it. Do not mix it with your retirement goals or plans. Also, while it is perfectly all right to give gifts to children, in your retirement you r children should not be needing monetary support from you in any manner.
  • Travel : If you are a travel crazed person, like I am, you better estimate these expenses in a proper manner. Travel abroad is obviously expensive but even travel within India is getting there, especially if you account for the fact that at an advanced age you will need to travel in some comfort.
  • Hobbies : Whether it is Golf, attending live music shows or visiting literary or theatre festivals, hobbies can be expensive. However, at this stage of your life you do need to indulge in them and therefore you have to plan accordingly.
  • Health related : Even with health insurance, there is no guarantee that all mishaps will be covered adequately. As the decades go by, whatever you reduce in travel and hobbies should be kept for this purpose.

We can keep adding other categories but the above are good enough to arrive at a reasonable basis for our retirement expense calculations. How do you do it?

  • Take your running costs based on your current expenses at the time you retire. Let us say this is X.
  • Take other costs as a factor of X. For example if you are a frequent traveller then you may want to keep 0.5 X as your costs here for the first decade. Remember it is also a function of what X is. For example if you live frugally then X may be 4 lacs and you may need to keep 3 lacs for travel, especially if you are looking to travel outside India.
  • Some costs are not annual in nature. For example asset replacement may well cost you 5X BUT it will be only once in 10 years or so.

I hope you have understood the concept by now. Doing this for 3 decades will tell us what is the total cash flows that we need at current costs. You can then check as to whether you have adequate inflows either from your assets or other sources.

The proof of the pudding is always in the eating though, and I will explain this framework with my personal situation in the next post.