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Retirement Worries

How much do you need to Retire in Peace? The quintessential question has really no clear answers with answers varying based on their own biases and beliefs.

On the web, a simple search for “How much to Retire filetype:xls” give you hajaar excel files where you need to put in a few numbers and voila, you have a ready-made number that you need to save to get there.

While Excel files are a good place to start, they at the max are dependent on who has framed the question and what he believes in. Some excel files for example ask very few questions and then provide you data on how much you will spend in Retirement  while others request detailed queries which you need to answer before a number is flashed.

Someone I know from Twitter and who has built the later style of Excel Sheet had this to answer for my question on why so many queries

“The sheet is complex. Deliberately so. Most investors want piece meal answers and product names without considering asset allocation and its variation. So I would like to focus on that. It is not for everyone”

Some time back I downloaded from the web around two dozen such calculators and tried it out to see the results on what I shall need for my own retirement. Most numbers are close and not surprisingly so.

The other day I had tweeted about a live webinar on Retirement Savings. I myself attended the same though didn’t follow up on calculating what I need. Someone who I have met once mailed me a couple of days back and I quote (with permission of the sender)

“Thank you for sharing the details of the webinar. But after watching it I’m a bit afraid. The gentleman in the webinar says 4 crores of capital is required if I want 50K monthly after retiring. I want your frank opinion – is this really legitimate? or is it some sort or market gimmick from him?”

I wasn’t surprised he was worried. Very few of us are able to earn / save 4 Crores by the time of Retirement. The reason for the big figure lies in the way most Retirement Calculators are build.

The three Key questions that most Excel sheets require your answer are

  1. Your Current Expenditure (Yearly)
  2. Inflation (Estimate until you Retire)
  3. Years to Retire
  4. Life Estimate (End Date)
  5. Inflation (Estimate post Retirement)
  6. Return on Investment (both Pre and Post)

Once you gather all the info, Excel – the greatest invention ever, comes to your aid.

Type in FV(Current Spend, Current Inflation Estimate, 0, Years to Retire) and you shall quickly find out how much you will be spending at the time of Retirement.

Do a similar Query using the output (Expenditure at Retirement, Inflation post Retirement, 0, End date in Yrs) and voila, you suddenly now know how much you will be spending at the death bed.

It’s my humble view that if you can project inflation for the next 50 years, I am sure that you should be considered for the post of RBI Governor for he himself has no clue of what Inflation would be over the next 1 year let alone next 30 / 40 years.

But since we know and if we feed that information to Excel, we immediately know how much we will spend at what year and reverse engineering that, we can easily find out how much to save by the time we retire.

For example, if you today are spending 25K per month and have 20 years to Retire, at the time of Retirement you will be spending 80K per month and by the time you die (95 Years), you will be spending 6.16 Lakhs per month.

Man, Life is so easy once you have figured out all these info for all you now need to do (for majority of folks) is Save, Save and Save with the hope that you shall reach the magical number that Excel has given out.

Most calculators go the Linear Equation way since it’s pretty simple to come up with a number that seems to sound round about right. We are after-all a growing economy and will continue to grow for decades (something very few countries have actually been able to achieve) and hence these numbers should be right, Right?

The fault in these numbers lies in the fact that they are for proving ready-made solution. The reality though is that each one of us will have a different path and one that will lead to a different requirement.

Expenses grow over time and that is true. What is false is that you will continue to spend as much money (Inflation adjusted) even after touching your 70’s and 80’s as you did in the 40’s. The biggest expenditure at those times is Medical for no matter how much you like eating out now, your body will say No to eating out and having the simple pleasures of Life at your own home.

Current Expenditures in that sense have very little to do with Future Expenditures.

Real Estate investment (even for self) is currently a nice mocking subject. SIP better than EMI goes a famous saying. But at 60’s and 70’s, do you really want to move houses because the landlord wants you out every few years.

Yes, Renting is cheaper option these days given the atrocious cost of property. Unlike markets though, corrections in India have been far and few (last most remember is the 1995 price crash). Property prices I am told are crashing left, right and center and yet I find very little evidence to the same. Yes, there have been instances where owing to difficulties; people have disposed off properties at prices lower than what one believed in. But that is nothing more than a panic and one unlike stock markets rarely result in capitulations.

The famous crash in United States of housing in 2007 was due to a variety of factors most of which aren’t even applicable to countries such as India.

The biggest advantage of owning your own house shows up in the Security you shall have in the post-retirement years. Regardless of anything else, the least of your worries shall be getting kicked out of the house due to inability to make the required rent.

A financial calculator doesn’t differentiate between costs that cannot be avoided and costs that can be avoided. Every cost you have now is assumed to remain and keep growing in the years to come.

10 years back, I barely spent any money on Telecom and Internet. Today, it’s a big number. Tomorrow, who knows – it may actually decline rather than increase for disruption is always in the air.

Retirement Calculators also try to include expenses you may need for Children’s Education / Marriage among others. Once again, the thought process is simple. If it costs 60 Lakhs today to do a  MS in USA, how much will you need to save so that your child can do when he comes of age.

Once again, we overlook what technology can aid up in. MOOC wasn’t even an acronym few years back, today more and more colleges are looking at it as a way to limit the costs of students who are overburdened by student loans while at the same time being able to deliver quality education.

The biggest complaint of MOOC today is that the students miss out on the Networking / Learning from co-students as also ability to make friends. While the complaint is real enough, by the time your children come of age, we may have found a better solution. Most importantly, this assumes that the child really wants to do a MS in USA instead of something else.

The bigger your requirement is, the more you need to save. While savings are always good than spending, too much of savings always comes at the cost of quality of living. Do you really want to compromise on every small pleasure, read expenditure, today just because a excel sheet says so?

A friend of mine spends an excessively obscene sum of money on vacations (he loves travelling). Yes, he can save more by cutting down on that expense. But at retirement, no matter how big the savings are, his body itself would disallow the free nature of vacations, something he can now do now.

On the other hand, at other places he is as miser as you can be with very little spent on un-necessary items such as Gadgets / Mobiles and Vehicles. In a way, his way of life is Quid Pro Quo.

Today more than ever, we have people and tech that can help up plan our retirement. Whether you plan it yourself or take the help of someone else, question every number and every assumption.

There is nothing like one single number that can solve all your worries, so the key is to make sure you are in the wide band with the best case scenario being of lowest probable expenses and worst case scenario of maximum expenses. The reality would lie somewhere in the middle as always.



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