[srsrini]

Originally Posted by Ferrari1976

I quit IT and now am full time in to investing, with the plan to start investment advisory in the future.

Wow! That is great to hear. I am halfway there in the first line. Want to start investment advisory - but that is yet to begin. Would love to exchange notes.

This is a great thread! Never imagined that I would find such a thread in BHP. I would give a bunch of pointers quickly. I promise to write a longer article on the last point.

Context first: I just crossed 50. I had always set 2020 is the time to 'retire'. I am ready financially now.

1. Financial Freedom - For all the young folks here: You don't need to think about 'retiring early' as such. You could love your job and strive to be the best that you can be. However you can always plan for Financial Freedom - the state of having sufficient personal wealth to live, without having to work actively for basic necessities as well as other life goals. This wealth would have a number - 6 cr, 4 cr, etc. Some can call it FI - Financial Independence - number. You can also call it FU number. There is a great series going on in Paisa Vasool podcast on Financial Freedom. This is done by the blogger at freefincal.com - please look up that blog.
2. For the few who posted about their post first career experience - Thanks a lot for the insights. I would love to hear more. I am personally planning a hobby/career on financial advise.
   
3. For those in 40s - After 2010 or so, I wanted to be very sure that my corpus is indeed enough. The typical calculators are not helpful since they mostly consider living expenses along. I took some great calculators from freefincal.com and added some more. I came up with a reasonably complex calculator that can tell you if you are on track for financial freedom.

I have of course done these calculations for myself. I also had a chance to validate this with a newly retired person. I would take some time to write an intro and post the excel sheet calculator.

Again, great topic!

[srsrini]

Bucket Strategy Calculator for Retirement and Other goals


This write-up describes a calculator that combines a set of factors to assess the feasibility of achieving financial freedom early in life. In a typical retirement - say at or after 55 years - an individual would have completed most of the goals - home, children education, etc. The only, or definitely the biggest, goal would be that of retirement corpus


In an early retirement scenario, say 45 years, many of the other goals would be unmet. The corpus will have to address these goals as well as retirement needs. Considering the long years in retirement, the withdrawal strategy has to be sophisticated. Hence this tool - A calculator to apply bucket strategy to major goals as well as retirement.


I developed this for my personal situation. My first child would be in 12th standard in the year that I plan to achieve financial freedom. (I may choose to retire at that time, continue working or take a different career - that does not change the goal of financial freedom.) My second child is 3 years later in education. So in the first 12 years of 'retirement', I would have many large expenses related to my children. I have already built a corpus that is sufficient for their college education and either higher education or marriage. My retirement corpus (along with rental income) seems sufficient to follow the typical income drawdown strategy.


I wanted to push further if I can meet all the goals, and throw in expensive vacations. This calculator helps me assess that.


In recent years, I have begun to use the calculators at freefincal.com for all my financial plans. For this scenario I had to combine two calculators and add some customization. The original blog posts have detailed, useful information on the calculators. Please look up the references first.



0. The calculators always start with the inputs for retirement planning. For any person earning income, this is always Goal # 1.



1. I took the goal planner sheets from 2012. (https://freefincal.com/goal-planners-2/)
One of the sheets has the template for staggering education expenses into many years. To this I also added a table to capture some non-recurring expenditure like vehicle, vacation, etc. The sheet can be used standalone for detailed calculations for education goals. For the purpose of retirement, the most relevant information is the corpus required for a particular year. (Connection to BHP: The goals also include regular car purchases!)





2. I then merged this into the bucket strategy simulator for retirement. (https://freefincal.com/the-even-lowe...nt-calculator/) In fact the new calculator is an attempt to validate the assertion at the end of the first paragraph: The reduction could be higher for early retirement.


3. I had to modify some of the formulae in the sheet to pick amounts for all the goals. These modifications are marked in light blue fill. More than 90% of the information in the sheet is retained from the original version.


4. I created a new sheet that captures yearly outflows under various heads - Education, Retirement, others, etc. This is the last sheet in the file. Since the calculator is for all goals, there could be large variations in yearly expenses.


5. I extended the buckets to a total of 11 years. If each bucket is for 5 years, then the calculator can be used for a period upto 55 years from now. I also modified the relevant cells to pick the expense amount for that year from the cashflow sheet.


6. When the calculations from the buckets are plugged back, the Retirement_Inputs sheet gives a clear idea of the net corpus required, and the monthly investments required to achieve that corpus. If this monthly investment can be met, then it is feasible to achieve early financial freedom.


7. The last sheet seeks to provide an overview of the corpus required and where it can be invested. If you have sufficient corpus to get 4 or more ticks, you can consider that you are at the Financial Freedom threshold.



This sheet (attached to this post) is by no means easy to use. While I welcome suggestions to make this simpler, I can definitely answer questions/clarifications from people who want to use this sheet.

[deadguy25]

Originally Posted by srsrini

Bucket Strategy Calculator for Retirement and Other goals
This sheet (attached to this post) is by no means easy to use. While I welcome suggestions to make this simpler, I can definitely answer questions/clarifications from people who want to use this sheet.

Wow! That is an exhaustive and very useful sheet. Thank you Srini .

I have started entering values and trying to see if I get what I have in mind. Will reach-out for clarifications.

[srsrini]

Originally Posted by pedrolourenco

I will never consider this option. For me it is "Work till you die" or "Work till you are physically capable". Once you have earned enough you can always switch to a less stressful job, work less hours/days, take longer vacations, do a voluntary job or a normal job and donate earnings to charity.

Sure. That indeed should be the plan for most people. A way to look at this would be from the prism of Financial Freedom, or Financial Independence - the state of having sufficient personal wealth to live, without having to work actively for basic necessities as well as other life goals. This can be a more formal definition of your phrase 'earned enough'

Originally Posted by rajushank84

...

The only part I am not sure about is relying on insurance alone for health needs, but then I am ignorant about health insurance, its nuances and how it works. I guess I am just paranoid that some condition may come up which they decide is "not covered". I guess I'll read up about this.

(Side rant - why didn't they teach us all this in school?! Why aren't Personal Finance, Investments, Insurance, Personal Health and Relationships 101 five major subjects for everyone? I bet most people can use these a lot more than analytical geometry or the detailed insides of a frog!)

You have a very good point on healthcare costs. This can be a huge problem. But the problem does not go away even if you retire at the 'normal' age of 58, 60... A large surgery five years later can mess up the corpus. One mitigation could be to plan for a large health insurance outgo - I budget 30,000 per person as of now.

You have another great point about the five major 101 subjects. In my small efforts, I try to have sessions with my colleagues on a disciplined approach to building wealth. It somewhat captures the first 3 of the 5 that you mention.

To give a BHP reference, imagine any of us buying a car based on what the vehicle insurance salesman recommends Most of financial planning happens in India based on so-called free advice from people who earn from commissions.

[Eddy]

Is the excel working fine ? It throws formula errors the moment I change any value in a green cell.

[PGA]

The thread has enabled me recollect my life. As I understand, we look for a change because we aspire for greater happiness in our lives which emerges from greater fulfilment, not necessarily material. ‘Freedom’ is the other paradigm.

Wisdom of Ages tells us that amassing money cannot be the basis for attainment of above two goals. Money is for power, protection and influence not necessarily for happiness and freedom. Implying that there are ways to attain critical two even if you do not have 2/5 crore corpus.

Five years ago, I would have whole heartedly agreed to these mentioned amounts and would have cheered on anybody who was giving his 100 percent for achievement of these objectives so as to attain happiness and freedom. Not anymore.

I did a changeover from a steady Govt class I job into farming at the age of 47. Was it foolhardiness, in the hindsight, yes it was, my kids were still in the school, I had no second income. Why did I do it, I wasn’t happy with the environment and future prospects looked bleak. Did anybody try to drill some sense into me, yes many but I was adamant. My status today, living off half the income I earned in 2012. Am I feeling poorer, not really, I am still able to go out for occasional dinner and movie or buy a decent phone for myself and my close ones. Earlier they envied iphone, now very happy with Moto 5 GS plus. Do I have the influence I wielded five years ago, yes a little greater, thanks to past service. Do I have the freedom I aspired for, yes certainly, my next reporting channel is God. So am I happier, emphatic yes. Is the future looking bleak for me, you may take guess now.

My learning’s in this short journey:

- At any stage in life, a changeover is leap of faith. Any amount of planning will not be able to show you the topsy turvy life you will encounter after you jump. But it’s fun and in the end one does emerge out a winner. Only requisite is that one has to be a human being with feet on the ground. Look around, everyone one to some an extent or the other is a winner in life, we would have still been hunters and foragers had it been any other case.

- To make it through and cushion your many hard landings, some support is essential, foremost being that of your near and dear ones and your life partner.

- It’s always good to have philosophical and moral underpinnings so that there is some method while you are in madness.

- Have a good idea of your ‘way of life’ and try to keep it on even keel even when you are going through roller coaster.

- Majority of times roller coaster is your perception, otherwise things are normally smooth.

- An attitudinal shift which may help is, that instead of saving or waiting endlessly for a rainy day, have an ability to weather rainy day, after all its only transient.

- The life was, is and will remain exploratory in nature, so you are not doing something big or special by doing a changeover.

- So is it a foolhardiness I would want to do again, perhaps yes and earlier in life the better, because after 50 some faculties/capabilities one thought one had do vanish.

[tejas08]

Originally Posted by srsrini

This sheet (attached to this post) is by no means easy to use. While I welcome suggestions to make this simpler, I can definitely answer questions/clarifications from people who want to use this sheet.

That's an excellent worksheet you have made. Only one clarification - Please explain the worksheet.

When I look at the basics of the spreadsheet that you have prepared, my calculations are pretty much in line with the same formulas & logic. Just that I have a spreadsheet which is crude & non-presentable. Or it may not be usable for someone else to work out his retirement plans etc. without a good amount of modifications to the spreadsheet.

The only thing I do not agree upon is the inflation rates of 8% standard over a period of 35-40 years & a 10% inflation rate on education. Yes, of late things have started moving north but those are phases. When you look at the inflation over a period of time, it averages out. For example, You cant say that because the Realty market was seeing a rise of prices in the period of 2007 to 2012, the same trend would apply for the next 30-40 years. My house price quadrupled in that period for me. (Ratio of Sell Rate & buy rate of the same property & not notional value).

Originally Posted by Eddy

Is the excel working fine ? It throws formula errors the moment I change any value in a green cell.

Seems fine to me. Haven't tried out everything though.

Originally Posted by PGA

Five years ago, I would have whole heartedly agreed to these mentioned amounts and would have cheered on anybody who was giving his 100 percent for achievement of these objectives so as to attain happiness and freedom. Not anymore.

A little bit of a difference between what you said and the discussions taking place. I guess most people over here are looking at completely retiring from their professional life. The whole discussions is more focused on achieving a corpus where one can truly enjoy a retired life without ever having to earn a single rupee again or by making a switch to some other profession or the likes. For example, when I say that I want to retire at the age of 50, I mean that I do not expect any income from the age of 51 and its only the corpus accumulated by then would work & earn for me while I relax & enjoy my retired life.

[PVS]

a very interesting thread, and very insightful inputs across members spread across age groups. I am 43 years I have no plans of retiring; don't have a significant retirement corpus yet. Intend to keep reskilling myself and keep working till I am no longer able to do so.

[rajushank84]

Originally Posted by PGA

....

My learning’s in this short journey:

.....

- So is it a foolhardiness I would want to do again, perhaps yes and earlier in life the better, because after 50 some faculties/capabilities one thought one had do vanish.

Words of wisdom! Thank you sir!

Especially your point about everything being transient, and developing the ability to weather hard times, makes me thoughtful.

[penpavan]

Originally Posted by PGA

The thread has enabled me recollect my life. As I understand, we look for a change because we aspire for greater happiness in our lives which emerges from greater fulfilment, not necessarily material. ‘Freedom’ is the other paradigm.

Thank you PGA for this post. I believe in learning from others' experiences and boy does your post help!

In my own view, quality of life is highly overrated concept. So you may plan your future as per your current life style. But we are a generation who have come from "no electricity" to "everything on fingertips". Rolling back to basics shouldn't be a very big problem in reality (though in thought it is). After all, human beings are the most adaptable species on earth. So, I guess everyone will certainly make a good living with whatever they will have at their disposal when they actually stop earning.

[rajushank84]

Since @sdp1975 mentioned he doesn't believe returns will be higher than inflation since they will even out in the long run - I was curious and applied my 5-crore target figure to this possibility, curious to find out how long it would last, with a constant withdrawal of Rs.70,000pm (by 2018 value - adjusted for inflation YoY thereafter), with both returns and inflation being 7.5%.

It lasts 45 years. So, if you start at the age of 45 then this corpus (adjust it for inflation from current year based on whenever you will hit 45!) will run 90 years before hitting zero. Of course, this is after setting aside 20% of it as buffer.

[srsrini]

mod note: Back to back post please use Multi Quote [Quote +] instead. Thanks.

Originally Posted by rajushank84

Since @sdp1975 mentioned he doesn't believe returns will be higher than inflation since they will even out in the long run - I was curious and applied my 5-crore target figure to this possibility, curious to find out how long it would last, with a constant withdrawal of Rs.70,000pm (by 2018 value - adjusted for inflation YoY thereafter), with both returns and inflation being 7.5%.

It lasts 45 years. So, if you start at the age of 45 then this corpus (adjust it for inflation from current year based on whenever you will hit 45!) will run 90 years before hitting zero. Of course, this is after setting aside 20% of it as buffer.

Actually this is quite simple, if you are sure about having returns and inflation the same. Then your corpus needs to be roughly y times the initial annual expense. y is the number of years that the corpus needs to last. In my mind, figures like 5 cr are needed if you have to fund other goals - particularly for children. For retirement alone, a corpus that is 30 to 40 times your first year's expenses would be a good start. By the way, there have been great responses from people who have achieved financial freedom. I know of a person who is quite open to include personal information in his blogs. if you read a bunch of his articles you would get a good idea of his life and that could give enough pointers and inspirations. He likes to keep things simple - the phrase in the previous para is inspired by his posts. https://financialsafari.wordpress.com

Originally Posted by tejas08

That's an excellent worksheet you have made. Only one clarification - Please explain the worksheet.

When I look at the basics of the spreadsheet that you have prepared, my calculations are pretty much in line with the same formulas & logic. Just that I have a spreadsheet which is crude & non-presentable. Or it may not be usable for someone else to work out his retirement plans etc. without a good amount of modifications to the spreadsheet.

The only thing I do not agree upon is the inflation rates of 8% standard over a period of 35-40 years & a 10% inflation rate on education.

Thanks for trying out the excel sheet. I can definitely do a better job of explaining things better in the sheet. You would find more information in the two freefincal articles that I referenced. The bucket strategy gets some time to get used to. It is also not simple to depict in calculations - that is one main reason why most retirement calculators don't use that strategy. On inflation, I like to keep things conservative - estimate inflation, etc. higher and returns, etc. lower If you see the bucket sheet, the return expectations are on the lower side. I would be happy to explain any part of the spreadsheet. This would also give me an opportunity to put the explanation back into the spreadsheet.

[GutsyGibbon]

As a person over 45, I would be lying if I say I have not thought about retirement. In my opinion, early retirement is not an all or nothing proposition. Not all jobs are the same, and the career does not have to be linear, and always in one direction. It can flatten out, or even take a dip (in terms of pay/designation).

At 35, I had acidity, back ache and issues that a 50 year old would have. At 40, I was burnt out - sandwiched between engineers and upper management, driving myself and the family nuts. I lurked around several India based online forums ready to retire somewhere in South India. At that time, it struck me, why does my next job have to be linearly bigger in terms of designation, and pay? Career should also be linearly bigger in terms of happiness. The next job we take/accept should make us little more happier. When I dug in deeper, the extra money was not making me happier.

I switched back to engineering/coding at a workplace 2 miles from home. I come home for lunch, play with my dog, take a nap, and then go to work when I am refreshed. My productivity has gotten better, and my happiness has shot through the roof. I feel I could do this for ever, isn't that how it should be? Now, my Directors want to make this happy engineer a manager, but no thank you! I'm gooood!

[vrprabhu]

Having quit my job last year (which I joined way back in 1983, and had another six years to go), I am not sure that I qualify to be an early retiree ..... as I have landed in a similar position elsewhere!

I had planned to quit around 2010 - but things didn't work out as expected.

A couple of things did work out though -

(a) No loans - zero debt. So no Damocles sword (of EMIs) hanging over my head;

(b) Timed my savings, so that the corpus gets built before 2020 i.e. much before actual retirement date;

(c) No expensive habits - other than spending a small fortune on the upkeep of my car and bike every year

(d) Resisted the urge to splurge - in fact am wondering how I have collected so much junk (it proves the old adage that money saved is money earned).

(e) There is no point in thinking about the past and regretting your mistakes. Don't repeat such stupidities once again.


What I feel that I need to maintain, so that post retirement life is as contemplated, are -

(1) Ensure good health and stay active (Health is indeed wealth)

(2) Have a positive outlook and be satisfied - there is no point worrying about whether you have enough money in the Bank. When I look around, I see people who are struggling to lead a decent life and many don't even get compensated for all the hard work they do. Compared to them, I am much much better off.

(3) Support from family is essential. If your parents, spouse and kids back your decision to allow you to do whatever that it is you want to do, it makes post-retirement life much more enjoyable.

PS - I actually wanted to do some freelancing and helping out - there are few takers for free services, and didn't want to start doing something from a scratch....

[Oxy]

Originally Posted by vrprabhu

A couple of things did work out though -

(a) No loans - zero debt. So no Damocles sword (of EMIs) hanging over my head;

(b) Timed my savings, so that the corpus gets built before 2020 i.e. much before actual retirement date;

Sir, I am sure many of us would like to understand how to go about point (b) that you mentioned above.