How much do you actually need for retirement

Financial Independence, Uncategorized

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.

  1. The tax rate is different once a person crosses a certain age level in India.
  2. 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.
  3. 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.
  4. You need to account for inflation especially medical inflation in India which is going crazy.
  5. 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!!!


Compounding & the relevance of period

Financial Independence, Uncategorized

Last time I had written about why human beings are attracted always towards the complex items and don’t understand simple concepts like compounding.

One thing which comes to my mind is the fact that compounding works on 2 key parameters….longer periods of activity(of years in case of money)  and higher rates (of interest in case money).  While the human brain is very good at figuring out things quickly by identifying patterns, it gets completely foxed when complex calculations need to be done.

For the first 4-5 periods of activity, there is no appreciable change if you when you start with small values, because of which it seems that nothing worthwhile is happening.  So if you have started with 1 Rupee after 5 years if you only have got 2 rupees you are not able to comprehend how big the number can become. Its only later that the fun starts taking place.

Look at the table below.  The IPL cricket season is about to start in India and people in India could relate to this idea. It could be wickets in a game of cricket or holes in a game of golf.  We will start with a dollar for every wicket / hole taken in a match and double it for the next one till we take 18 holes in golf or wickets:

Wicket in cricket / hole in golf Amount doubled after every wicket/hole
1 1
2 2
3 4
4 8
5 16
6 32
7 64
8 128
9 256
10 512
11 1024
12 2048
13 4096
14 8192
15 16384
16 32768
17 65536
18 131072

Would you wager a bet with anyone on doubling the amount on each outcome.  You wouldn’t if you see how what starts with just a dollar becomes more than One hundred Thirty thousand dollars.  As a matter of fact Tony Robbins has a post specifically on this idea.

If you were to take this forward to a 22nd wicket/hole can you comprehend the value – it will be …it will be 2 million (20lakhs)….and by the 30th hole it would have become…Half a billion dollars (or 500 crores).

Warren Buffets actual growth of wealth has been after the age of 60 because of this phenomenon.  Its the age of the investments that have enabled the compounding to start playing a role.

Think about it.  If you were to ensure that you were to keep money for your child from the time she is born, you will make her a real rich person by the time she is 45-50 without her doing anything….at all.

For those of you who are more visually inclined pls have a look at the chart below

Screenshot 2019-03-17 at 10.22.33 PM

Next time we will take the same example by comprehending different interest rates and show how the different rates can change the graph.

Till next time.

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( 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.

Animesh playing 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…