[adithya.kp]

For such expectation, why bother looking at real estate? One can put it in debt liquid funds. No hassle of managing tenants etc.

Originally Posted by pseudo_coder

If one has a corpus of 12 crores, one can put it in a commercial real estate. 6% rental per year is achievable. 4% is pretty easy, which means 48 lakh per year, or 4 4 lakh per month.

[pseudo_coder]

Originally Posted by adithya.kp

For such expectation, why bother looking at real estate? One can put it in debt liquid funds. No hassle of managing tenants etc.

That's also a good option. Good thing with RE is that the rental return is separate from capital appreciation.

With commercial property, leases typically run for several years, and everything internal is taken care of by the tenant.

[srsrini]

Originally Posted by adithya.kp

I think he has used a very conservative ( rightly so) return of 8.33% to generate 1 crore income from 12 crore corpus. That translates to 8.33 lac income per month. So why do you think such a corpus is sufficient only when the monthly expense is < 1.5 lac?. Even if the expense is 4 lac per month, the retained earnings is still 4.3 lac per month. This retained earnings will again go back to the original corpus and will help compound. That will take care of inflation, one off expense etc.

I would like to, not so humbly, state that looking at the first year's possible income is a very bad way to look at the retirement corpus. Typically such corpus have to last 30,40 or more years and our mental math would not typically comprehend the effect of inflation over such periods, or the corroding effect of taxes.


This is how one should approach the calculation of retirement corpus.


1. Estimate the expenses for the first year of living.
2. Apply the *right inflation figure* and estimate the expenses for each subsequent year
2a. If your expenses include a lot of luxury items, then the inflation for them could be much lower. e.g A top of the line iphone costs almost the same every year!

3. Estimate sporadic, non-recurring expenses and add them to the right year's cashflow
4. This gives you the yearly total of 'income' that you need from the corpus


Now if you want to leave the corpus intact, you have to ensure that the corpus is enough to generate the income required in the last estimated year of living.


More often, it helps to run down the corpus. In that case, just take each year's outflow and apply a PV to normalize to the first year of retirement. Total all these up, and this is the corpus you need.

In the later approach, you withdraw exactly what you need each month.


You can of course choose to leave part of the corpus intact - works well with assets giving rental income, etc. and deplete the rest. Your calculation can be changed to include this.


But please, never ever look at the possible income in the first year and decide the sufficiency of the corpus. If you are serious about early retirement, there is no short cut but do the calculations fully.

[ece2k2]

Originally Posted by adithya.kp

I think he has used a very conservative ( rightly so) return of 8.33% to generate 1 crore income from 12 crore corpus. That translates to 8.33 lac income per month. So why do you think such a corpus is sufficient only when the monthly expense is < 1.5 lac?. Even if the expense is 4 lac per month, the retained earnings is still 4.3 lac per month. This retained earnings will again go back to the original corpus and will help compound. That will take care of inflation, one off expense etc.

Since I am looking at a very long term perspective (30-40 years of retirement probably), I don't want to take even a slightest chance in estimating the expenses/returns/inflation for such a long duration. So my estimate reflects my ultra conservative mindset. I have assumed the average inflation to be 6-7% and I am planning to use up just 1-2% earnings every year so as to keep up with inflation. Also I have assumed pre-tax returns to be 8-9% as I have 80% investments in moderate/low risk debt.

If I manage to save up more than necessary after a decade or so, I would think about spending more

Originally Posted by srsrini

2a. If your expenses include a lot of luxury items, then the inflation for them could be much lower. e.g A top of the line iphone costs almost the same every year!

While I agree that luxury items with relatively similar level spec cost almost the same every year, I still think we need to apply some mark-up as there is always a possibility for a better product to come up at a higher cost. If we take the iPhone example, I believe I paid $999 for a 256GB iPhone X a couple of years ago and it was the top of the line model then. But we have an iPhone 11 Pro Max 512GB now that costs $1449. For someone looking to buy a top of the line iPhone every 2 years, this is a significant price jump that we need to factor in. But if all we need is a $999 iPhone 11, that is going to work well - as long as we don't look for top of the line every time.

[Eddy]

Originally Posted by ece2k2

Since I am looking at a very long term perspective (30-40 years of retirement probably)........ Also I have assumed pre-tax returns to be 8-9% as I have 80% investments in moderate/low risk debt.

A 30-40 years horizon and 80% in moderate / low risk investments? Maybe you should relook at your portfolio distribution.

Related thread - https://www.team-bhp.com/forum/shift...our-money.html (Where do you invest your money?)

[ece2k2]

Originally Posted by Eddy

A 30-40 years horizon and 80% in moderate / low risk investments? Maybe you should relook at your portfolio distribution.

Related thread - https://www.team-bhp.com/forum/shift...our-money.html (Where do you invest your money?)

Thanks, but I already have a sizeable portion of my investments in real estate and gold as well. I have parked the cash portion in predominantly debt funds - as I don't want to take too many chances by going all equity.

[Eddy]

30-40 years is very very safe for equity related investments. Please do take a second opinion.

Good luck!

[shankar.balan]

Originally Posted by ece2k2

I think with a 12 crore corpus, one should limit his/her monthly expenses to 1.25 to 1.5 lakhs to be on the safer side. This is hoping that the average inflation remains at about 6-7% over the next few decades. But if someone manages to build that sort of corpus and also have a secondary source of income (say rental income) that takes care of his/her regular expenses, that would be awesome. This would ensure that the corpus can enjoy the full power of compounding for the years to come.

I dont understand the suggestion here to limit the monthly expenses to 1.5 or 2 lacs if one is in the fortunate situation of actually having such a vast corpus of 12 Cr.

I also dont understand the suggestion, for this secondary source of income which takes care of “regular” expenses.

If one is actually able to achieve such a vast 12 Cr Corpus which is placed nicely in various Mutual Funds etc, and which is able to generate a nice fat monthly income, then this kind of corpus should potentially yield perhaps around 9% interest. So let’s say approx 9-10 lac per month.

Also assuming that the main tax hit on this earning will only be by way of Long Term Capital Gains Tax and may be just a bit of Short Term Capital Gains Tax.

Allowing for lets say, around 8.5% y-o-y by way of inflation, then one should be a just a little bit ahead of the game, even if one is indeed able to spend such a vast amount of money each month (which I personally think is terribly difficult/ highly unlikely in India, unless one has a supremely extravagant “Kardashian” kind of lifestyle or if one is trying to fund an election or career in politics or is an inveterate gambler or similar!).

So in point of fact, it might actually come to pass, that from the projected income of 9-10 Lac per month, even if the person ends up spending the significantly large of say 4-5 lacs, he/ she will still be ploughing back the remainder 4-5 lacs, which will go right back into the Corpus and further add its might towards the “Compounding Effect”.

I would think therefore, even if one actually has a highly extravagant and lavish, almost “prodigal” lifestyle, if I may be permitted to use such a word, that such a large Corpus as being discussed here, ought to be more than enough to manage with for the next 25-30 years of life.

Unless as I said, one is a real wicked prodigal and is addicted to all sorts of evil vices, including, but not limited to, high stakes gambling and the like.

Even more so I would say, that such a vast corpus ought to be way more than sufficient, considering a situation where if one does NOT have any responsibilities unto the proverbial “next gen” or anyone else, and therefore does not have to plan on leaving anything behind for anyone after one shuffles off the mortal coil.

Keeping this in mind, it might actually be true that if one is able to achieve a solid Corpus of Rs 7.5 - 8 Cr (at today’s rates and frame of reference), this kind of amount should be able to easily enable a very high quality of lifestyle with all the trimmings and icing on the cake as well, for the next approx 25-30 years of life.

A very interesting insight from one of our friendly members here (Srini) - and which I appreciate very much - is the simple true fact, that it makes good sense to segregate one’s different types of “Expense Types” and “Likely Frequency” of such Expenses and then calculate these over the projected time frame of retired life.

Because each different Expense Header, carries with it, a different Rate of Inflation and it is only by estimating this as best one can in a scientific manner, that one can derive some idea of the actual “Weighted Inflation” that one will experience, over the projected time frame of retired life. This in turn can be set off against the projected rate of interest being earned on the corpus and the effect of LTCG etc, so as to actually figure out if one is able to get ahead of the game or at least go neck and neck and break even, as it were.

This will help plan a bit better.

[veyron_head]

Very interesting perspectives and a great thread! I have been working towards retiring early (mid forties which is a few years away) and I don't intend to do anything after I retire. I know I can be extremely happy and satisfied doing nothing!

Now, I am curious to know why some of you think Real Estate is a bad investment. A modest 2 bedroom apartment I bought in 2013 has appreciated by 30% which I think is pretty good. It is true I am paying a home loan with atrocious interest rates for decades, but then once the loan is paid for I have an asset that is atleast 2X of what it was worth.

Also, would like expert's opinion on pension plans (apart from NPS). Has anyone invested in LIC or met life pension plans?

[shankar.balan]

Originally Posted by veyron_head

I don't intend to do anything after I retire. I know I can be extremely happy and satisfied doing nothing!

Now, I am curious to know why some of you think Real Estate is a bad investment.

To me, as mentioned in one of the earlier posts, Real Estate rarely benefits the Generation that bought / invested in it, unless one is a part of a BOOM like 2003-2006 in Bangalore. Also ROI in terms of Rental Income is around 2-3% which is pathetic considering the 9% Interest Rate in India. Then comes the pain of managing the property etc. And there is still the gamble - because the “next gen” assuming one has a next gen, may or may not value the real estate thus inherited. If one ain’t got a next gen and couldn’t care less, then Real Estate is a highly Illiquid Investment.
Hence I think I prefer Mutual Funds rather than Real Estate.

Ref doing NOTHING post retirement. I am a 1000% with you. No Guilt Feelings whatsoever. No need to be politically correct either. Couldn’t care less what the world thinks and am absolutely happy being an unrecognised anonymous nobody in life. I am decidedly NOT one of those people who need to have a “Purpose” and “career” and “public approbation” to feel that I have some value in life.

If I am able to enjoy my life on my own terms to the fullest and financially fearlessly, then thats all I want.

[sansvk]

Originally Posted by veyron_head

Now, I am curious to know why some of you think Real Estate is a bad investment. A modest 2 bedroom apartment I bought in 2013 has appreciated by 30% which I think is pretty good. It is true I am paying a home loan with atrocious interest rates for decades, but then once the loan is paid for I have an asset that is atleast 2X of what it was worth.

While calculating the return of an asset do include all of your outflows. In case of real estate, it would be the interest, registration, taxes, brokerage, maintenance etc.
A 2x return might sound good. Just google for 'IRR multiplication chart' and check what would be the IRR of 2x with a time horizon of a decade.

[Nissan1180]

Enlightening thread.
Curious to know what people who are entering their 30s are doing to safeguard their investments. I invested in stocks that were the darling of the MFs and analysts till 2 years back. The small and mid cap stocks in India are battered beyond redemption, and I don't want to invest any more into an equity market that's so susceptible to corporate frauds and forgery. Even Bitcoin is a better investment than many well-regarded equities in India. Blue-chips are still doing well, but it is a bubble because the earnings multiple for most of them are beyond global standards, and they will suffer the same date eventually when the market succumbs to the reality of the Indian economy decimated by demonetisation and a failed economic reforms agenda.

Where should we invest to build a corpus gradually? Real estate is out of the question because most builders even in large cities insist on a large black contribution even today, and rental yields are too low to even pay 50% of the emi. Stocks except a very few blue chips are a gamble because one never knows when an accounting fraud or scandal will emerge. Is it possible to invest in international stocks that have better corporate governance standards? How to do it from India? Thanks.

[shankar.balan]

Originally Posted by Nissan1180

. Is it possible to invest in international stocks that have better corporate governance standards? How to do it from India? Thanks.

Yes. It is possible to invest in International Market from India.

However, as per my knowledge, the way that one can do it is only via targeted Mutual Funds, which give us a better “hedged” success rate rather than if one were to try and invest directly in the stock market.

As an Indian, operating with Indian Rupees, one cant actually invest direct in the International Stock Market.

If living abroad there are all sorts of interesting options, for small and/ or systematic investors in the stock market. One can for example buy even Gift Cards from StockPile and SparkGift and Stake etc to invest in Stocks and Shares.

[SilentEngine]

Originally Posted by Nissan1180

Is it possible to invest in international stocks that have better corporate governance standards? How to do it from India? Thanks.

Originally Posted by shankar.balan

As an Indian, operating with Indian Rupees, one cant actually invest direct in the International Stock Market.

I believe it's possible to invest in US stocks. From last few weeks, my stock broker HDFC Securities has been bombarding me with app notifications and emails about investing in US stocks directly. Looks like they have tied up with some US based broker. Note that all investments happen directly with the US based broker and not through HDFC Sec.

Even Citibank used to send some similar mailers once is a while.

All these fall under LRS (Liberalized Remittance Scheme).

https://www.hdfcsec.com/globalinvest...m=GIHomebanner

Disclaimer: I do not have any first hand experience of this so please do your own research. This is shared just for information.

[shankar.balan]

Originally Posted by SilentEngine

I believe it's possible to invest in US stocks.

All these fall under LRS (Liberalized Remittance Scheme).

https://www.hdfcsec.com/globalinvest...m=GIHomebanner

Disclaimer: I do not have any first hand experience of this so please do your own research. This is shared just for information.

You can invest but only through some kind of Stockbroking House and then also, the predominant method used would be Mutual Funds as per what I know.

It’s a rare stock brokering house who will, entirely based on the investor’s risk appetite, recommend direct investment in the US or other stock market. Most of them will hedge their bets by recommending certain Mutual Funds out there.