How much do you actually need for retirement

I don’t know the answer. For each of you it will be different. So you need to find it out for yourself.

So why this post.

Recently I was having lunch with one of my colleague who is just crossed 60. He was talking about how he had a discussion with a relative on what is needed after retirement.

So he had the following calculation:

If he needs Rs100000/- per month then he will need Rs12,00,000/- in a year.

If he is in the 30%+ tax bracket then he has to account for tax, which means he should make approximately Rs18,00,000/-.

If he has a fixed deposit which will give him 7% RoI then he will need a corpus of Rs26,000,000/-. Now since he is no where close to this figure he was getting depressed on how he will handle the situation.

For all of you who live out of India, the retirement age in India in most offices is either 58 or 60. Some jobs do have 65 as the age. Private companies do have people working after the age of 58 but that is on contract, not as a full time employee with all the benefits. Even in India the average age of both males and females has been going up every decade. In the cities especially with access to better medical treatment, the average age has crossed 70 now. Which means a lot of people in the cities will now live to cross 85.

Being an absolute optimist I highlighted a few things that were flawed in his argument.

The tax rate is different once a person crosses a certain age level in India.
30% tax on the whole amount does not include the deductions which the government allows as standard to all citizens. So the taxation is rarely on all your income.
While its good to have a large portion of your money in a fixed deposit, so that you are saved from the fluctuations of the stock market, it does not mean that you should have all your money in such low interest yielding paper. There are a lot of decently safe options which could give you safety as well as a higher rate of interest.
You need to account for inflation especially medical inflation in India which is going crazy.
You need to have a financial advisor who can suggest you ways to come into the lowest tax bracket.

If you were to take all the above items into account then the figure may not be the depressing number of 26,000,000/- given above. It could be almost 30-40% lower. That got my colleague a little relaxed.

Having given the above example however the fact remains that after retirement, you may want to travel across the country or abroad. How do you finance those spendings?

For an India perspective, I would suggest you read the book by Saurabh Mukherjea Coffee Can Investing. He has taken some very specific cases and built a hypothesis of how you should be investing to get to spend your old age well. At a broad level his belief is that for taking part in the stock market without risking majorly, ETFs are the best bet because they have low expense ratios(in one of my earlier post I have shown how an incremental 1-2% difference in returns because of expenses charged by mutual fund houses can impact your returns dramatically). However for the small cap stocks he still recommends using some of the renowned mutual funds.

For all my readers from the US and Canada, I will not tire of recommending Tony Robbins’ book Money Master the Game. Its a thick book but it’s a book which will give answers to a lot of your queries. Most of the so called advisors don’t answer the questions adequately well. Tony has been able to get you answers from some of the best people in the world who handle trillions of dollars combined. He has also given a perfect asset allocation breakup. Also all the advisors are very clear first on not losing money. And last they all suggest index funds again because of low expense ratios.

All of us have to retire one day. Death and taxes are the only 2 realities of life. How you manage your taxes and investments so that you live well, till you die. The earlier you start investing the better off you will be in the later stages of your life. I have been giving various examples of how compounding can do magic even if you don’t earn much – if you start early and invest in decently size returns.

Till next time then…find out how much you would need to retire and then work backwards to achieve it. Have a life.

Carpe Diem!!!

Sponsored meals for one year for 12 kids.

Financial Independence, Uncategorized

In my blog of 10th December 2018, I had mentioned that using Paul Dunn’s concept of Buy1Give1(B1G1.com) in a slightly different way- because I don’t have a business of my own – I intend to give away a dollar for ever new follower of my blog/website and Linkedin – and achieve my objective of donating to my charities on a regular basis.

Based on the number of followers I have today on my website/blog and the new followers on Linkedin, I have added a dollar for each. I have been able to donate meals for one year for 12 kids on Akshay Patra. I have a target to reach the capability to sponsor one meal for one year for 100 kids. If the number of followers on my blog/website and Linkedin keep growing I should be able to hit this number also pretty fast. Right now I am active only on these two. Slowly I will raise my activity levels on other media as I see success. If you are interested in knowing more about the work the click Akshay Patra.

If you compare Tony Robbins’ agenda he wants to be able to feed 6-8 million people in a year. He has written 2 books Money Master the Game and Unshakable and donated all the proceeds to help achieve that objective.

My achievement seems so small compared to what Tony is doing. But as I mentioned, I got inspired by Paul Dunn’s Ted Talks that even very small regular interventions can dramatically improve the world. If you have not heard Paul’s 4 Ted talks, I sincerely suggest you watch them. So what I used to do haphazardly and irregularly earlier, now becomes a system.

In multiple posts earlier, I have mentioned that I follow Mohnish Pabrai, the US based fund manager who runs Pabrai investments. He runs the Dakshana foundation to which he is every year donating a certain portion of his wealth. Mohnish is an ardent follower of Warren Buffet and like Warren, wants to donate a certain portion of his wealth every year. This foundation helps poor, deserving kids in India, who have potential, to get trained so that they can appear for entrance exams and qualify for the best engineering (IITs) and medical institutes(AIIMS) in India.

Now Mohnish has a major lament, which I have noticed in his YouTube videos. He believes that given the speed at which he is donating his wealth year-on-year to Dakshana, there will not be enough deserving kids left who have potential to be trained. His feeling is that there are not enough deserving kids coming out of the government/municipal education institutes in India.

One of the reason for that, is that poor parents don’t send their kids to school even though school education in India is now virtually free in all states. They want the kids to work and earn some money, so that the family can be fed. The more hands working the more possibility of earning. If we eliminate the challenge of feeding the kids, that too with a very nutritious meal, then these parents will also send their kids to the government schools. Akshay Patra kind of organisations are helping achieve that goal. Once the kids are fed well, they will be more healthy, have less sickness and they will hopefully also learn well and then the Dakshana Foundation kind of organisations will get more kids to train for higher eduction. Once more kids get educated they will bring up the “standard of living’ of their families. From the ground-up we will be able to take India and the world forward

Again the 12 that I have sponsored or the 100 that I have a target for, may not create a positive Tsunami but if more people like me keep doing these small interventions we will make this world a better place.

Till next time then….

Carpe Diem!!

Golf & lessons in investment

Financial Independence, Uncategorized

One of the items in my bucket list for a very long time- and I have one large bucket list that I need to cover- was that I wanted to play golf.

Last weekend I accidentally ended up at a golf resort. We were planning to go to a city about 300 km from where I stay but for some reason we decided we did not want to go that far for the week end. So we saw a place comparatively closer and went to the Lemontree Tarudhan Valley resort. This resort overseas a 9 hole golf course at place which is about 15KM from Manesar in Gurgaon. When I had booked the hotel I did not know that the resort was overseeing a golf course.

I have a habit of always asking at the reception, when I check – in, on things do and places to see nearby. There were the standard things which you get to see at a resort like a club to play, swimming pool etc. But what struck me was when the person at the reception said they have a trainer who can help me learn golf.

The picture above is, me taking my first lesson of golf.

Since I have never played golf before the first thing the coach over there did was place about 50 balls in front of me, which I was to only hit without bothering where the ball went.

When you watch people playing soccer, basketball or hockey or cricket you see a lot of running around the field all the time. You get to see the sweat on the players and how they need to keep themselves hydrated.

On the other hand when you watch people play golf on television, it feels like a such a slow paced game with very little effort. But golf is anything but relaxed. Just hitting 50 balls was enough to get me exhausted. When I tried moving a little faster I just hit the ball into the ground, so I had to be patient and plan my shots. Also it was so tiring that if I did not pace myself, I would not last through the game. So patience was an absolute virtue and planning your shots with the “hole” in mind was important. Even how I moved my body weight before hitting the ball was enough to get the ball moving in a totally different angle.

Aren’t these the exact same things I keep ranting about in these blog posts. Asking young folks to have patience, plan their investment with their goals in mind and that compounding can play magic if you give it a long enough runway.

Golf cannot be learnt in one day. If you have to get anywhere worthwhile you need to dedicate a lot of your time by playing regularly and for a long period of time. Which is the same in investments also. You need to keep at it. You need to pay yourself first before you pay anyone else and you need to pay yourself regularly. This is where SIPs (systematic investment plans) can help. The automated system of SIPs ensure that you invest for yourself before you can even think of spending it anywhere else.

There is another thing that investments help you do. They allow you to think of having big bucket lists and give you the capability to slowly keep ticking items off your bucket list as you achieve them.

Golf is an expensive sport but the advantage is that, because its expensive, few people can afford to play it. That makes it exclusive and that’s one of the reasons why it is said that maximum number of deals get struck while playing golf.

On the other hand compounding and investment do not need you to be a rich person to retire rich. What you need to do is start early, so that you give the compounding engine enough time and you need to keep an eye on the net interest you are earning. One of the richest people in the world was Sir John Templeton, when he died. However he started his life as a conductor but ensured he was investing about 50% of his income. You can read his story in the book by Tony Robbins – Money Master the Game.

In some other posts I will update you on the items which are still on my ever-growing bucket list and the ones I have already completed and the ones which are work in progress.

Till then…

Books that have influenced me in my financial education

Financial Independence, Uncategorized

In our education system unfortunately even now we are not taught life skills. Whether it is on building interpersonal relationships or financial literacy the education system even after 16 years of highly competitive education does not prepare us for living a life. I know this about India. You could tell me your experience with other countries.

During one of a recent gathering at home we gave some books to some of the kids on investing. The idea was that if the kids can learn this at a young age then they will be better off. One of the kids asked on what other books had helped me during my journey.

While there have been a lot of books and company annual reports and videos, I will give you some names of books and what I learned from each book in this and the next few posts. Maybe we will even go further for the annual reports and videos in later posts. The books listed here are by no means in any order of ranking.

Tony Robbins – Money Master the Game – I have given this book as a gift to others and highly recommend especially if you stay in North America because some of the concepts are truly North America focussed. This book has interviews and experiences of some of the best money minds other than Warren Buffet. The book is written in a very simple language and has inputs on creating the edge in your investments. This is a very big book to read. A few key things that stood out for me-
- Tony was giving away all the earnings from this book to a charity foundation and also adding an equivalent amount from his own. Most of the rich people I have read believe in giving back to society and magically their investments only keep growing
- Saving versus investment – if you have to create wealth you cannot create it by saving. you have to invest.
- Sir John Templeton – even though he was just earning 50 pounds a month, he created such a big financial empire by saving more than 50% of his income every month.
- Asset allocation – all investments will have cycles. Equities will rise and fall dramatically. The fall can destroy your earnings if you entered the equity at a high price. By having debt and some commodities in your portfolio you can ensure that the rise and fall you have in all types of investments is buffered. Depending on your risk profile ensure that you have some kind of allocation.
- Automating and paying yourself first- always automate your investments so that there is no emotion involved because otherwise you will always have expenses which will eat up your money and you will never invest.
- A third very important concept was fees paid to fund managers and how the small percentages of fees taken by the fund managers can impact your long term growth. In India SEBI is doing a decent job of controlling the expenses charged by mutual funds. Especially if you don’t have the bandwidth of researching multiple companies, going with a mutual fund in India makes sense. Another place where mutual funds in India are better bet is the small and mid size companies. As an individual investor you will not have the information on these companies which these institutional investors can get. In India for the large companies like in the US investing with index funds/ETFs where the fund charges are extremely low makes more sense
- The last key perspective from my point of view was the distributor’s role. If the distributor is biased by the commission she gets, she will never give you proper advice. So you should choose your financial advisor different from your distributor to get proper advice on investments.
Mohnish Pabrai – The Dhando Investor. A very simply written book about how the Gujarati community has created riches in America by buying when the markets were low and then capitalising when the markets went up. Markets follow cycles, they will go up at some time. Mohnish uses this to showcase how buying quality stocks at low cost can help make huge money. Mohnish is big follower of Warren Buffet and has his own investment firm Pabrai investments. Like Warren he also does a lot of giving away of his wealth . His foundation Dakshana is involved in training a lot of financially weaker students to train for IIT and AIIMS.
Alice Schroder – The Snowball – A biography of Warren Buffet. There are a whole lot of books on Warren. Even I will list some more which have helped me understand investing. This one however takes you up and close to the real Warren Buffet from his childhood and how his decisions have helped him today become the richest man in the world even after giving away so much of his wealth. The biggest takeaway out of reading this huge book for me was the concept of deferring your urge to spend. There are various examples in the book where Warren thinks if he should be spending a few dollars now or investing such that he could have a multiple of the amount to spend. Now some people could call him stingy, Some people whom I have given this advice have also told me then why earn and live if we can’t spend. You need to be a judge of this for yourself and decide your priorities. Warren had a goal to be a multimillionaire by his mid thirties and he achieved it well in advance of his target. One other aspect is his commitment to give away a certain portion of his wealth every year till the time he dies.
Peter Lynch – One up onWall Street – this book gives such a simple advice on how to invest. His logic is simple. The numbers and frameworks and everything else is for the big investors. For the small investor like you and me he gives a very simple idea. Invest in companies which you use everyday and your investment will be successful. Out of the mutual fund universe, the shares I invest in are the ones which I use. Whether it is my bank or my housing loan or the shampoo we use, I have looked at investing in only those companies. I also get the pleasure of knowing that what I am buying, some portion of the profit would come back to me in the form of either dividends or by the capital appreciation of the stock

This post has kind of become big already. I still have a lot of books to talk about. Each of these books gave me a few ideas to form my investing philosophy. So I will cover these in the next few posts.

Till then

Carpe Diem!!!

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