All of us need a target in life to make progress.

How much pot one should build to retire and live off interest assuming a fully paid house in a city like Pune.

What kind of expenses one should assume for a family of four - Rs 500000 per annum at current value considering house is already taken care of? i.e. we need to keep inflation in mind.

What is the best way to keep the money once you have it inflation and other risks protected?
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  • Originally Posted by real_pro

    . Considering the scenario over past 5 years people haven't made any money in stocks..Do you think people will have the guts to put a crore (40% of their capital) in the stock market and retire now?
    .

    To the point real pro.
    People think that putting into stock some miracle will happen. Just cut paste from some stock brokers/consultants marketing material.

    Originally Posted by real_pro

    I think beating inflation in a secured way is the biggest challenge.

    I have tried to use the bankrate calculator -

    Retirement Calculator - How much to retire? It shows the amounts clearly over years.


    Again bulls eye. The whole point is to beat inflation and stock investment may help you achieve that but there is no guarantee.
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  • Originally Posted by real_pro
    I meant taxes on the interest. Your calculation is assuming 10% post tax returns. Also, your assumption is if you have 2.5 crores, one should put a crore in stocks and MFs. Considering the scenario over past 5 years people haven't made any money in stocks..Do you think people will have the guts to put a crore (40% of their capital) in the stock market and retire now?

    I think beating inflation in a secured way is the biggest challenge.

    I have tried to use the bankrate calculator -

    Retirement Calculator - How much to retire? It shows the amounts clearly over years.


    Income tax: Only thing that would attract income tax would be your short term FDs...with 50 Lakhs in that account, you would be getting 5 lakhs income maximum. If you split it into yourself and the spouse, income tax burden will be minimal.
    If you are using FMPs (Fixed maturity plan MFs), you will be doing indexations and will minimize your taxes when you redeem.

    I am not too worried about the income tax when you are trying to live off the returns on judiciously invested money.


    I think beating inflation in a secured way is the biggest challenge.


    There is absolutely no 'safe' way to beat inflation. Only stock market has ability to beat inflation just because if businesses/companies don't beat inflation, they will cease to exist.

    If you can find an investment that can beat inflation with guarantee, and if inflation is at 12% and returns at 13%, and withdrawal of 5 lakhs per year, one could live very happily with 1 crore and a paid off home.
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  • Originally Posted by NG2012
    Income tax: Only thing that would attract income tax would be your short term FDs...with 50 Lakhs in that account, you would be getting 5 lakhs income maximum. If you split it into yourself and the spouse, income tax burden will be minimal.
    If you are using FMPs (Fixed maturity plan MFs), you will be doing indexations and will minimize your taxes when you redeem.

    I am not too worried about the income tax when you are trying to live off the returns on judiciously invested money.


    There is absolutely no 'safe' way to beat inflation. Only stock market has ability to beat inflation just because if businesses/companies don't beat inflation, they will cease to exist.

    If you can find an investment that can beat inflation with guarantee, and if inflation is at 12% and returns at 13%, and withdrawal of 5 lakhs per year, one could live very happily with 1 crore and a paid off home.

    Companies will continue to beat inflation but whether the stock reflects that is the biggest question. Now, the stock prices of lot of stocks have gone down by 100% does not mean that the companies are not beating inflation and vice versa. The stocks work on forward P/E ratios and speculations. Most of the stocks have their earnings factored in. So it is not such a simple way to look at things. So far, I am a big fan of RE since it has given consistent returns historically. I think buying a good commercial property gives around 7-8% rental returns plus 15-20% p.a. appreciation over the years. If the property is in a great place it can give stellar returns that can be unmatched. It could be a good secured way of beating inflation. Another good hedge for inflation would be Gold etfs. I also like FMCG stocks (HUL, GCPL etc)...they are probably the most secure investments with highest dividend payouts based on their historic performance and future prospects in the India story. They are defensive bets but best way to beat inflation.
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  • The stocks work on forward P/E ratios and speculations. Most of the stocks have their earnings factored in. So it is not such a simple way to look at things. So far, I am a big fan of RE since it has given consistent returns historically.


    Efficient market theory should ensure that real worth of the company is reflected in the stock price..over long term. However, I agree, stock market can deviate in much longer range.

    RE may have performed well in last 6-7 years. However, in 2004, I have had couple of RE owners desperately trying to sell me their properties as they needed money urgently.

    I am sure you also know about stories how people had to sell their properties for peanuts (now prime properties). The point is RE is an illiquid asset in stangnant market and getting out of it can become extremely difficult.

    Its good to have some portion of your networth in RE (as inevstible asset..not primary residence) but beyond that RE can become a toxic asset.
    RE as an investment can generate enormous wealth as long as one doesn't lose sleep over it and has good holding capacity. Real wealthy people seem to have a large RE holdings....but their lives don't depend on it.

    I am unsure of Gold as an asset as people would quit eating before selling it. There is hardly an Indian who doesn't have at least one set of close relatives fighting over inherited properties. Millions of brothers hav become sworn enemies because of this asset class.

    So unless one already has a price target in mind, its best to have limited exposure to this asset class. Don't leave properties for your kids. Sell them and give them hard cash.

    ---------------------
    I am a poor man and so my opinions are also laden with poor ideas.
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  • just chanced upon this thread...nteresting discussion by ng2012 and real pro... interesting read... thanks guys...
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  • Lotus eater

    Originally Posted by stoxxx
    All of us need a target in life to make progress.

    How much pot one should build to retire and live off interest assuming a fully paid house in a city like Pune.

    What kind of expenses one should assume for a family of four - Rs 500000 per annum at current value considering house is already taken care of? i.e. we need to keep inflation in mind.

    What is the best way to keep the money once you have it inflation and other risks protected?

    The target will be a moving target. We cannot predict what will happen 25 years hence. Today with information available about yourself+ family it may be 1 crore,but circumstances will change and amount may change.Frequent stock taking of finances,expenses,commitments will be necessary.

    Life style,inflation will be some of the important factors to decide a target.

    I read a short story by Somerset Maugham Lotus eater.it is nice and relevant to our discussion.
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  • There will be no end to inflation and moving targets and other calculations . Frequent stock taking will not change your income once you've finally retired .

    What I simply feel is assuming you have your own house retirement corpus should be something which will generate annual interest equal to the annual salary you are getting at the time of quitting work .(e.g. 20 lacs per year for corpus of 2 crore)

    P.S. For private job , I'm assuming work span of abt 20-25 years and retirement from primary work at 45-50 . At this point of time you'll still be healthy and young to enjoy your life and have the energy to work on something you enjoy and it may also generate some income . I know a number of people who have achieved this .
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  • Originally Posted by Manoos
    If the india growth story is to be believed then wont the fixed interest rates (FD) fall gradually and go below 5% level in coming future like it has been in Western countries ?

    if we do become a 3 trillion economy by 2015 will our FD rates hover around 8-9% ?

    Fixed deposit interest rates are highly tied up with the inflation figure.

    More the inflation, RBI will increase the repo and reverse repo rates which ultimately end up in bank increasing interest rates for borrowers and give more return on FD.

    if inflation goes down(which is still question for india where population is so high and bigger %age population below poverty) then interest rates on FD will go down.
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  • Originally Posted by NG2012
    Income taxes shouldn't matter a whole lot if a family is drawing barely 5 lakhs in income per year (inflation adjusted from next year).

    Instead of spreadsheet here are my super simplistic calculations:
    1. You have 40 years of life ahead
    2. You draw 5 lakhs this year and 5.5 next year (10% inflation)
    3. Your money also grows by 10%

    So with Rs 2.5 crores as initial capital, after 40 years, you will be still progressing
    With Rs 1 crore, you will hit decline after 10 years
    With Rs 1.5 Crores you will decline after 22-23 years
    with 1.75 crores you will decline after 30 years

    The snapshot:
    Initial investment Withdrawal
    250---------------------------------- 5
    270 ----------------------------------5.5
    291.5-------------------------------- 6.05
    314.6 -------------------------------- 6.655
    339.405 ---------------------------- 7.320
    366.025 ---------------------------- 8.052


    With this calculation, you have really made my day :)
    I have exactly 2.5 crores and 5 Lacs per annum, is good enough for us(me, my wife and my daughter) to live. I am 35 and I dont see myself living beyond 70 so, yes less than 40 years ahead of me.So that means, I dont really have to keep earning money from now on.

    Ofcourse, I wont stop working, but its great to know that you dont have to work to survive. That brings immense peace of mind :)
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  • Originally Posted by revhappy
    With this calculation, you have really made my day :)
    I have exactly 2.5 crores and 5 Lacs per annum, is good enough for us(me, my wife and my daughter) to live. I am 35 and I dont see myself living beyond 70 so, yes less than 40 years ahead of me.So that means, I dont really have to keep earning money from now on.

    Ofcourse, I wont stop working, but its great to know that you dont have to work to survive. That brings immense peace of mind :)



    Revhappy,


    When you say you have 2.5 cr, does it include your primary residence. If this net-worth includes your primary residence, then I don't think you are looking at the above calculations correctly.



    I think 2.5 cr should be in addition to primary residence.
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  • Originally Posted by Deepak Singh
    Revhappy,


    When you say you have 2.5 cr, does it include your primary residence. If this net-worth includes your primary residence, then I don't think you are looking at the above calculations correctly.



    I think 2.5 cr should be in addition to primary residence.


    No it doesn't include. 2.5Cr is fully liquid. I dont have a house of my own yet. But thats not an issue, renting is cheap in India. There is no way I am going use 1Cr to buy a house. I would rather rent or stay with my parents and this 2.5Cr will grow faster than what a 1Cr house will grow.

    Also note that, if I am not planning to work, then there is no need to stay in a big city like bangalore and spending money to fund an expensive house. I could rather move to a tier 2 city like Mangalore, for example, which has much cheaper real estate and cheaper cost of living and has good education and 3G connectivity, that is all that I need. :)
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  • Nice discussion.

    revhappy
    Savings of inr 2.5 cr at the age of 35 !! pretty cool .

    Assuming the avg age of participants in this discussion to be about 30 ~ 32 i would say a saving of about 4 cr on or before Dec 2045 should be enough to lead a good life for another 20 years or so.

    The major expense in the future shall be healthcare and food. Everything else will pretty much be the same.
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  • Originally Posted by revhappy
    No it doesn't include. 2.5Cr is fully liquid. I dont have a house of my own yet. But thats not an issue, renting is cheap in India. There is no way I am going use 1Cr to buy a house. I would rather rent or stay with my parents and this 2.5Cr will grow faster than what a 1Cr house will grow.

    Also note that, if I am not planning to work, then there is no need to stay in a big city like bangalore and spending money to fund an expensive house. I could rather move to a tier 2 city like Mangalore, for example, which has much cheaper real estate and cheaper cost of living and has good education and 3G connectivity, that is all that I need. :)




    I like your approach dude. but ....
    1. Once you move back to India, you will be forced by your wife to move to big city for children's education/future job prospects. I don't think Mangalore is cheap either.
    2. After moving around for few years, you will get so tired of moving around that you will spend money for buying a flat in tier 1/2 city.


    I sincerely hope that you don't fall in this trap and enjoy your life...
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  • Originally Posted by ashwinrath
    Nice discussion.

    revhappy
    Savings of inr 2.5 cr at the age of 35 !! pretty cool .

    Assuming the avg age of participants in this discussion to be about 30 ~ 32 i would say a saving of about 4 cr on or before Dec 2045 should be enough to lead a good life for another 20 years or so.

    The major expense in the future shall be healthcare and food. Everything else will pretty much be the same.




    Thanks. My earnings and savings is very much front loaded. I don't think I can sustain this rate of savings going forward. I just took some high risk and it played out well.



    I am already contemplating retirement, so you can gauge how much driven I am to work and save in future. But then Ofcourse I cannot stop working and I don't have any bright alternative plans to make income either. So I guess I will just come back to Bangalore and do what I know, which is IT as long as I can.
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  • Originally Posted by Deepak Singh
    I like your approach dude. but ....
    1. Once you move back to India, you will be forced by your wife to move to big city for children's education/future job prospects. I don't think Mangalore is cheap either.
    2. After moving around for few years, you will get so tired of moving around that you will spend money for buying a flat in tier 1/2 city.


    I sincerely hope that you don't fall in this trap and enjoy your life...




    Mangalore has much better quality of education compared to Bangalore. Cost of education is also much lower and I feel Bangalore is too much hype about these extracurricular activities, euro kids, tuitions etc. But if you see the rankings in sslc Bangalore is always behind Mangalore.



    Next is cost of living, mainly rent or purchase of a house. You can buy a nice bungalow in Mangalore for the price of a flat in Bangalore.

    In the past only tier 1 cities used to have all facilities like internet etc but now you see things like ola cabs, 3G, malls, pizza hut are in tier 2 cities also.

    So if you really don't want to work, then your money will last longer in a tier 2 city than a tier 1 city.



    Ofcourse, this is a bit of a hypothetical discussion, because its too risky to stop working so early, there are just too many unknowns with 40 years of life ahead. So its much more safer to go back to Bangalore and take a job with lower salary and better work life balance so that you don't need to dip into savings.



    Another important factor for retirement location is whether you want to live with/close to your kids or not. My parents built a house in Bangalore so that we can study and work in Bangalore and then they also stay with/near us. I have only 1 daughter and I would let her travel the world and not limit herself to Bangalore.
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