Is Rs 5 crore enough to retire in India?
Rs 5 crore is not a small amount. At all. And to be honest with you, if your expenses are reasonable, I think that Rs 5 crore would be sufficient to retire in India. That is also assuming that you manage (and invest) the corpus well.
Sometime back, I had written about – Is Rs 1 crore enough to retire in India? The detailed analysis I did prove that it’s not. For most people, it won’t be enough. So do not retire with just Rs 1 crore in India.
But coming back to the discussion about retiring with Rs 5 crore in India.
First, you need to have Rs 5 crore. Isn’t it?
If you don’t have it, then here is how much to invest to have Rs 5 crore for retirement. Once you have Rs 5 crore, then comes the question about whether Rs 5 crore is enough to retire in India or not?
Ofcourse it would depend on various factors.
But let’s move on anyway.
Is Rs 5 crore enough for a 60-year old to Retire?
Some assumptions (for starters):
- Annual Expenses – Rs 7.5 lakh (= Rs 50,000 monthly + additional Rs 1.5 lakh insurance / travel / medical / buffer / etc.)
- Retirement Corpus Returns – 8% – portfolio mainly has debt (giving 6-8%) and some equity (giving 10-12%)
- Average Inflation – 6%
- Life Expectancy – 90 years
In this scenario, your money never runs out. Congratulations.
So you can easily see that Rs 5 crore is more than sufficient to provide for all expenses in 30 years of retirement (from age 60 to 90).
What if your expenses are higher?
Like Rs 10 lakh a year? Or Rs 15 lakh a year?
It still doesn’t run out. I simulated it and that’s the truth. Rs 5 crore is a lot of money.
And do you know why it is a good idea to overestimate your expenses a bit? Because when you overestimate your expenses, you build in some buffers in retirement calculations. And that is a good thing because the retirement portfolio is open to some big risks:
- The sequence of Returns Risk – In the calculations, it is assumed that corpus will generate 8% average returns each and every year. But in reality, when the corpus is deployed in a mix of equity and debt, some years you might get higher returns from equity while in other years, you might see lower (or even negative) returns. Even debt returns move around a bit. So the overall portfolio returns will fluctuate accordingly. And if the initial sequence of returns in the first few years is bad (or less than our assumption of 8%), then the corpus will get depleted much faster due to withdrawals for regular expenses and much lower returns replenishing the corpus (or losses depleting the corpus).
- Higher inflation Risk – We have assumed a reasonable (but more than the currently prevalent) 6% inflation in retirement years. But it is possible that the actual inflation in atleast a few years may be unexpectedly higher. Who knows? This will naturally result in faster depletion of the retirement corpus if the retiree cannot reduce his expenses appropriately.
- Longevity Risk – We have assumed that life expectancy (from a corpus dependence perspective) is 90. It’s entirely possible that you or your spouse or luckily both (!) live much longer. If that’s the case, then you don’t want to run out of money at that age. Isn’t it?
- Unexpected and Uninsured Big Medical Expense – It’s possible that an unexpectedly large medical expense (which is not fully covered by health insurance) might force you to dip into the retirement corpus (assuming no help from family/friends etc.). If that happens, then that too can compromise the corpus’s potential to last for full 25+ years.
- Adverse Future Taxation – You never know when the tax regime may change for the worse. They might unexpectedly introduce some new taxes or clauses which will result in lower in-hand post-retirement income or need to withdraw more from the corpus as the in-hand after-tax figures will be less.
So it is for these reasons (potential risks) that you need to have some buffers while calculating the retirement scenarios.
Another aspect is, and you will agree with me here, that a 8% return every year is a hypothetical scenario.
A more realistic scenario would be the retiree parking the corpus of Rs 5 crore in a Balanced portfolio with 50% equity and 50% debt. With equity returns fluctuating every year between very high (let’s say +49%) to very low (let’s say -27%) and debt returns ranging from 6% to 9%.
I have simulated a return sequence of 25 years which eventually delivers 8% CAGR (our original return assumption used earlier).
Have a look below:
Spend some time on the table above. A portfolio of 50% equity and 50% debt sees fluctuating returns every year. So the actual portfolio return varies even though the 25+ year CAGR works out to be just what we assumed, i.e. 8%.
And this is the problem with the concept of CAGR – an average CAGR of 8% does not mean 8% every year. I have written about this phenomenon in detail here and here. A lot of people fail to understand it and make mistakes in their expectations. And that can be disastrous.
Let’s now use the above sequence of realistic fluctuating returns on the Rs 5 Crore retirement portfolio from which, withdrawals (starting from Rs 12 lakh per year) for retirement expenses are taking place.
Let’s see how long it survives now:
It still survives!
Rs 5 crore is still a big solid amount that will survive a lot of bad days!
But let’s stress test this further.
As I mentioned in the risks about getting a string (sequence) of poor returns in the initial years, it can suddenly destroy the retirement corpus and lead to a retirement failure. More so if the equity allocation is unnecessarily high, to begin with.
Let’s simulate it like this:
- Portfolio Allocation – 50% Equity & 50% Debt (not so conservative)
- Equity Returns in first 5 years: (-)12% returns each in first 5 years
- Equity Returns in last 5 years: (-)12% returns each in last 5 years
- Equity Returns in between: pretty much similar to the earlier example
- Debt Returns: same as in the above example
- Expenses: same as in the above example
Have a look at the simulation below. The corpus, inspite of struggling due to a bad sequence of returns in the first 5 years (and high allocation to that struggling asset, i.e. equity) and the last 5 years, still survives!
So when you have Rs 5 crore and you have a solid debt component in the corpus, then you really have to mess things up real bad to run out of money.
A poor sequence of returns in initial years can no doubt deplete the corpus very fast if exposure to the asset giving poor returns is high.
And you never know what would be the sequence of returns in the initial years of your retirement. It may be good. It may be bad. So that risk is always there. There are ways to manage this risk to some extent.
If you were looking for the perfect answer to Can I Retire With Rs 5 Crore in India today? then it really depends on tons of factors. But for most people, it should be good enough. And you might not even need that much. Assuming that equity returns, debt returns and inflation don’t move into unrealistic territories.
Retirement planning isn’t exactly rocket science. But it’s fairly tricky and a little difficult. And not because it involves number crunching, but because of the uncertainties associated with all the factors that impact it. It is really not just about punching numbers in an online retirement planner or excel retirement calculator that many people feel it is. It has been rightly called the Nastiest Problem in Finance. Do read the article and you will be stressed about the idea of retirement calculations themselves. My apologies for painting a bleak picture but I try to share the realities when I write.
Make sure you give retirement planning (or early retirement planning) the serious thought it deserves. In this No-Pension era, it is all the more important.
Ideally, the very first step should be to separate the goal of retirement planning from all other short/medium-term goals like a house purchase, children’s higher education and marriage, traveling (via saving in a travel fund), etc.
Keeping the goal of retirement separate from other goals ensures that you can give it the undivided attention it deserves and more importantly, you don’t end up dipping into the retirement savings as many people do without realizing its consequences.
And it may sound repetitive but it’s best to start early when saving for retirement. Here is a great example of how saving for 10 years works better than saving for 30 years if started earlier.
To be honest, asking Is Rs 5 crore enough to retire is not the right question. You should rather ask How much money is required to retire in India?
Ideally, a methodical and mathematical approach should be followed for planning your retirement savings. If you can do it correctly (and you should first know what can go wrong and where – do not miss reading this to understand), then it’s fine. Else, better to take good advice from an advisor for proper retirement planning. Or you can even consider full financial planning that will also take care of your retirement goal.
Whatever path you chose to put in place your retirement plan, make sure you do not delay it, don’t get your assumptions wrong and begin soon. Remember, you only get one shot at retirement. And there are no loans for retirement. So that’s about whether Rs 5 crore is enough to retire in India or not (2023).
This is if you retire today and have 5cr. But If retirement is say 14 yrs away and Current Monthly expense is 75k then it will be 1.7 lacs per month from the year person retires. And calculation has to be factored accordingly. What r the calculations then?
Very nicely written.True to real life.Numbers crunching done in a methodical way.Excellent one,MUST read for all interested in Retirement Planning
1. The very simple fact that the CAGR return on the corpus is 8% whereas inflation is only 6% conveys that the money will never run out.
2. Taxation has to be taken into account which has not been.
3. Under different scenarios as mentioned, it is extremely important to have ‘positive’ and good returns in the initial years from equity and even from debt also (you never know what happens to debt in today’s scenarios with central banks all over the world keeping zero percent rate of interest and of course the liquidity, credit and default risks). If due to any reason, the equity as well as debt returns (of course equity more stressed against debt due to nature of equity investment and returns) are bad in the initial years, then, it will be very tough for a person to survive the stipulated age.
Very nicely explained ..but sir why income tax on debt portion & equity portion not considered in calculation? If inflation is demon then Tax is monster ..we should take into account net cash flow.
if 5 crore invest in equity with good dividend history.
50 % large cap
25 % mid cap
25 % small cap
and approx. dividend rate is 1 % of all corpus then year by year dividend amount is increase. first year dividend is near by 5 lakh. so not hurt all over corpus, and obtain benefit of capital increase maximum.
Nice Post! Its always Interesting to read your blog post Dev!!!
Also more interest to know what will be the situation for 5 Cr, 7.5 and 10Cr with Early retirement case for 40 and 45 retirement age and less debt allocation … maybe 25% or less 🙂