[tasty911]

Originally Posted by DigitalOne

Data shows that people overestimate their expenses post-retirement.

This is so true.
In our case, while expenses in some areas have gone down, it has gone up in others.
Net-net, overall lower than I expected.

[rx100]

Originally Posted by kpkeerthi

A corpus of ₹6 crore (in 100% large cap equity) can sustainably support monthly withdrawals of ₹3 lakh, inflation-adjusted at 7%, for 35+ years. Assuming a modest and realistic 13% CAGR - roughly in line with NIFTY 50's historical average - it would still leave behind over ₹45 crore at the end of the 35th year.

Based on past data and spreadsheet simulations, all of this looks good on paper. But imagine a scenario like the COVID-19 crash, where the large cap NIFTY index fell nearly 35% in a single month. If you had just invested ₹6 crore, such a crash could wipe out close to ₹2 crore of your capital almost immediately and you are starting from 4 crore instead of 6.

Yes, the market did bounce back relatively quickly during COVID, but there’s no guarantee that future crashes will follow the same recovery path.

[Eddy]

Originally Posted by rx100

If you had just invested ₹6 crore, such a crash could wipe out close to ₹2 crore of your capital almost immediately and you are starting from 4 crore instead of 6.

That's why the investment has to be spread out over a year or so. I always buy debt funds and convert to equity over a year or so, depending on the amount.

[tasty911]

Originally Posted by Eddy

That's why the investment has to be spread out over a year or so. I always buy debt funds and convert to equity over a year or so, depending on the amount.

What about taxation in this scenario?

[kpkeerthi]

Originally Posted by rx100

If you had just invested ₹6 crore, such a crash could wipe out close to ₹2 crore of your capital almost immediately and you are starting from 4 crore instead of 6.

I don’t recall suggesting starting with ₹6 crore in equity. A safer approach for retirement would be to invest systematically over a period of at least 15–20 years. This strategy helps in averaging the cost over time and builds a cushion to absorb future market volatility.

Moreover, we’re looking at a time span of over 35 years - long enough to encounter numerous day-to-day, weekly, and monthly uncertainties. That’s why I based my calculations on CAGR.

[graaja]

Originally Posted by rx100

Based on past data and spreadsheet simulations, all of this looks good on paper. But imagine a scenario like the COVID-19 crash, where the large cap NIFTY index fell nearly 35% in a single month. If you had just invested ₹6 crore, such a crash could wipe out close to ₹2 crore of your capital almost immediately and you are starting from 4 crore instead of 6.

Originally Posted by kpkeerthi

I don’t recall suggesting starting with ₹6 crore in equity. A safer approach for retirement would be to invest systematically over a period of at least 15–20 years. This strategy helps in averaging the cost over time and builds a cushion to absorb future market volatility.

The key to addressing market volatility is to have a balance between equity and debt. One can choose the actual split per one's risk appetite (like 50:50, 60:40 or even 70:30), but having a part in debt is very important. This portion is what cushions the corpus from market falls, and one can keep withdrawing from the debt part during market volatility without worry about losing the corpus. Smartcat has explained this very well in some post either in this thread or in the MF thread.

[sknair]

A Macro-Aware Planning Model Using AI

Note to Mods: This post is based on my interaction/inputs and reviews, and fine-tuning with ChatGPT (spread across a few sessions).
I am posting this for awareness and to show how we can potentially use AI tools for complex retirement planning simulations. Hope this does not violate the policy (I am aware that content cannot be generated), but this is a simulation exercise, and I am sharing here is how we can go about planning for retirement with some real-world simulated inputs and AI tools.
I hope this is ok to share with our audience (else please remove this post).
I have been watching the team-bhp retirement planning thread for a long time. I had a bit of time over this weekend and wanted to see how GPT4.0 models this and if such an approach can be generalized. I have noted that generalization is hard, but still, I feel some of the golden rules of retirement are golden (proven by the simulation)!
You can adjust any of these details in the input sections and ask the AI tool to restate the parameters before simulation. Also, you can get the visual charts (an example below) and get a checklist for execution, including yearly inflation-adjusted withdrawal amounts, rebalancing cues.
Please note that this is an exercise for our awareness only. Please do consult a qualified financial advisor before taking any financial decisions; though AI is becoming really competent and can do better compute than regular tools, the human context, feelings, and comfort factors are harder to replace.
Likely, I am not adding much value, I apologize for being naïve in my first post in this thread with many experts.

What Went Into the Simulation (input for GPT)

Based on a retirement portfolio made up of the following for a reasonably sized portfolio size (please change as you are comfortable or required):
• 45% in ultra-short duration debt funds (low-risk, stable)
• 22% in Indian equity (growth-oriented, long-term)
• 10% in fixed deposits (stable returns, emergency use)
• 5% in a Balanced Advantage Fund (equity + debt mix)
• 3% in gold mutual funds (to hedge against inflation and crises)
• 3% in a US technology mutual fund (foreign diversification)
• 11% in PPF (tax-free, government-backed)
• 1% in liquid fund (for monthly drawdowns and emergencies)
Annual withdrawals of about 2.5% of the total corpus (starting at X lakhs per year) can be simulated. These withdrawals increased every year with inflation.

To make the simulation realistic, include: Inflation
Each year, inflation should be randomly selected between 4% and 6%, with some years being higher or lower. This reflects actual cost-of-living fluctuations.
Currency Fluctuations
Since the simulated portfolio includes US-based investments, factor in INR depreciation, averaging 2.5% per year, with random variation based on historical data.
Interest Rate Cycles
Returns on debt and fixed deposits varied slightly each year based on historical interest rate patterns.
Market Shocks, Introduce:
• 2 major shocks (for example, equity markets crashing by 30%)
• 4 mild corrections (equity falling by 10–15%)
These were placed randomly across the 35 years.
Tax Changes every 10 years, tax rates were randomly adjusted within historical ranges:
• Equity and hybrid fund tax varied between 10% and 15%
• Debt, FD, and gold tax between 30% and 35%
• Foreign mutual fund tax between 10% and 20%
Portfolio Rebalancing
Every 5 years, or after a shock year, the portfolio was automatically rebalanced to bring all assets back to target weights.
Glide Path (Age-Based Equity Reduction)
After year 10, the equity and foreign stock exposure was gradually reduced by 0.5% each year and moved into safer debt instruments. This helps reduce risk as the person ages.

Simulation Results
The macro-aware plan was the most realistic and the most robust. It absorbed inflation, market crashes, tax changes, and currency swings while continuing to fund annual withdrawals for 35 years, without running out of money.


Please do share if you modify/refine the model more realistically.
Thanks in advance.

[tasty911]

Originally Posted by sknair

A Macro-Aware Planning Model Using AI

So how do I use this if I have to tweak to my needs?
Do I just copy/paste parts between "Based on a retirement..." and "...helps reduce risk as the person ages" into chatGPT and expect results.

[JediKnight]

Originally Posted by sknair

Please do share if you modify/refine the model more realistically.
Thanks in advance.

I follow much simpler approach. Instead of treating the entire corpus as one monolithic whole I like to split it into parts for various goals.

For daily running expenses I would follow this approach. Lets us suppose you have 2 crores for this. Split this into two halves. 1 crore your invest in fixed instrument @ 6%. The other crore you invest in a instrument @ 12% say something like a balanced advantage fund. Now keep drawing living expenses from the first crore ( invested @ 6% ) such that it lasts for 10 years. Let it run down to zero. No need to protect the principal. Don't touch the other basket for ten years. After ten years the first crore will be zero and the second will be 3.1 crore. So now split it again into two 1.55 crore portions and repeat.

I have purposefully kept the example simple for understanding. I do not discuss stuff like taxation or what happens if the market is down when you try to switch etc.

If you have spose who is not very financially savvy better to get an annuity even though results may not be optimal. Annuity has many benefits including protection from financial frauds which can be a problem as you age.

[sknair]

Originally Posted by tasty911

So how do I use this if I have to tweak to my needs?
Do I just copy/paste parts between "Based on a retirement..." and "...helps reduce risk as the person ages" into chatGPT and expect results.

Yes, please; you can copy it, ask ChatGPT to run the simulation, and ask for the resulting Excel and the chart.

By the way, Grok AI (https://grok.com/) is better at running multiple simulations. I asked Grok to run 10,000 simulations with a 95% success rate for the above portfolio. It will also generate the Python script for you to run it yourself, you can ignore that, and ask Grok to run the sim by itself. You can ask it to optimize the runs to reduce the failure rate and get to an optimum portfolio allocation and withdrawal rate for a given portfolio size.

[rx100]

Originally Posted by kpkeerthi

I don’t recall suggesting starting with ₹6 crore in equity. A safer approach for retirement would be to invest systematically over a period of at least 15–20 years. This strategy helps in averaging the cost over time and builds a cushion to absorb future market volatility.

When referring to starting capital, I mean the amount with which one begins their retirement journey. Whether this capital is accumulated over 30 years or 30 months is irrelevant and once someone enters retirement with ₹6 crore and invests 100% in equities with a monthly withdrawal plan, they must be prepared for scenarios like the COVID crash I mentioned earlier. If a person is entirely dependent on this money for their retirement income, how many would truly have the stomach to watch their capital drop by ₹2 crore in a single month?

I agree with your point that historical data and future growth prospects suggest this may not be a long term issue. But the point I was trying to make is that no one should rely 100% on equities for retirement income, as the returns can be unpredictable, and you never know what lies ahead, with so many internal and external factors influencing the market.

Originally Posted by graaja

The key to addressing market volatility is to have a balance between equity and debt. One can choose the actual split per one's risk appetite (like 50:50, 60:40 or even 70:30), but having a part in debt is very important.

Originally Posted by JediKnight

I follow much simpler approach. Lets us suppose you have 2 crores for this. Split this into two halves. 1 crore your invest in fixed instrument @ 6%. The other crore you invest in a instrument @ 12% say something like a balanced advantage fund.

The above two posts offer very sensible and safe approach.

[Axe77]

I have seen most people advise a percentage based debt / equity guidance formula for the post retirement phase of life when active income totally stops and one is reliant only on corpus.

I just wanted to bounce off this slightly tweaked principle that I was self-ideating with if it makes sense from an approach “at the point of retirement” (not in the active earning years). This of course reflects a basic equity biased investment philosophy, as a person.

Instead of following a percentage based allocation of debt vs equity vs others, I was loosely thinking of building a corpus with the following principle at the point of retirement. This is assuming one has already applied a 25X / 35X / lean FIRE / fat FIRE / whatever X ‘of annual expenses’ formula (or any other applicable formula) to arrive at the appropriate corpus value itself.

At the point of retirement assuming all active income has stopped and one is fully reliant only on lifetime investments corpus:

1. Have a combination of varied debt investments equivalent to about 6 years (give or take, +/- a year) of annual expenses. This is to account for year on year running expenses. The yield on these investments should hopefully account for inflationary adjustments required during this period itself. 12 - 18 months worth of this might be in safe banks FD (SBI / HDFC etc like) as predictable debt investments, which can cushion for any dramatic occurrences that might impact the value of debt / arbitrage mutual funds.

2. Have gold investments equal to about 6-12 months of annual expenses. This is again to account for any covid like or similar extraordinary situation where both debt AND equity investments might get severely impacted. I don’t know what such situations might be but just assuming that debt held via MF debt funds / arbitrage funds could also suffer at least short term volatility. In such a situation, assuming gold usually appreciates it provides a temporary cushion to draw from.

3. Balance, whatever be that amount, whether it results in 50% or 75% or 90% of corpus (i.e. regardless of percentage) firmly remains entrenched in equity to serve as growth capital, which hopefully should double in these 5 - 7 years (an all equity portfolio even at a conservative 12% assumed CAGR should double every 6 years).

Towards the last couple of years of this initial 6 - 7 year horizon, profit book equity portion at suitable junctures to rebalance the portfolio and build a further debt runway for the next 3 - 5 years. So on and so forth.

@Investment experts: Does this make sense as an approach or any fatal flaws here?

Thank you.

[sknair]

Originally Posted by Axe77

I have seen most people advise a percentage based debt / equity guidance formula for the post retirement phase of life when active income totally stops and one is reliant only on corpus.

.....

@Investment experts: Does this make sense as an approach or any fatal flaws here?

Thank you.

I am no investment expert, but just thinking out loud...
The above approach seems reasonable and practical, it would largely depend on the starting corpus, withdrawal rate, and how steady the equity market is. I think we should factor in quite a bit of volatility across the years and rebalancing triggers based on specific thresholds like +/-x% movement from the target distribution. Also, I would suggest running a Monte Carlo simulation using Excel or an AI agent to validate the assumptions and run at least 1000 to 10,000 simulations with varying market conditions at random.

[GoBabyGo]

Originally Posted by Axe77

I have seen most people advise a percentage based debt / equity guidance formula for the post retirement phase of life when active income totally stops and one is reliant only on corpus.

@Investment experts: Does this make sense as an approach or any fatal flaws here?

Thank you.

Hi Axe77, thank you for initiating a discussion on such an important and universally relevant topic.

While I am not an investment expert, I am a 52-year-old working professional who is actively planning for post-retirement expenses and corpus requirements.

I am attaching a personal financial statement that I have prepared, which might be helpful for others as well. Please note that this sheet does not include certain additional savings set aside as fixed deposits (FDs) for specific purposes. These include:

Medical expenses: Approximately Rs.20 lakhs, spread across FDs of Rs.1 lakh each

Vacation and travel: Around Rs.15 lakhs, also in FDs of Rs.1 lakh each

Gifts for grandchildren (birthdays, festivals, etc.): About Rs.10 lakhs in FDs of Rs.50,000 each

In summary, I estimate that I would need an additional retirement corpus of at least Rs.50 lakhs, over and above what is reflected in the attached statement.

I hope this is helpful.

BHPians are requested to enlighten us on this important topic, what are your thoughts and suggestions.

[kpkeerthi]

Originally Posted by GoBabyGo

BHPians are requested to enlighten us on this important topic, what are your thoughts and suggestions.

Sir, I’m not clear about the specific instruments in which your retirement corpus is currently invested. However, to effectively beat inflation, your portfolio should ideally generate returns of at least 10%. I feel you may be a bit optimistic in your inflation assumption: estimating it around 4% seems conservative.

I strongly recommend having your financial plan reviewed by a qualified professional. Please consider consulting a SEBI-registered fee-only financial advisor: someone who provides unbiased advice for a fixed one-time fee and does not earn commissions by selling financial products. A publicly available list of such advisors can be found on the SEBI website.

That said, if I were in your position, my asset allocation strategy would be along the following lines:

1. Medical emergencies: 50% in FDs, 50% in Debt fund. (Avoid bonds unless you can afford capital lock-in)

2. Retirement corpus: During the accumulation phase (10+ years to retirement): 100% in Equity. During the withdrawal phase (post-retirement): 50% in Equity, 50% in Debt. Tap from the Debt. Re-balance every 3 years.

3. Other contingencies: Aim to accumulate at least 800 grams of Gold over your working years. This should be in addition to your retirement corpus. Gold serves as a hedge against currency devaluation, especially during times of severe economic distress when paper currency may lose trust or value. During adversities you can pledge Gold and avail loan in a matter of hours. Avoid jewels. Prefer 22 carat coins. ETFs are also OK.

Remember, Equity is the only asset class that consistently outpaces inflation in the long run, as it is tied to corporate earnings, which generally rise in tandem with inflation. Keep it simple. Retirement planning is simple. Please do not be carried away by all the excessive information all over here and elsewhere.