Can You Retire with Rs 1 Crore Today in India?

Recently, a friend told me that he had ‘finally’ managed to save Rs 1 crore (not including his real estate investments). And he was quite happy about this achievement as the first crore is a big milestone no doubt when it comes to us Indians.

In the course of our conversation, he casually asked a simple question –

Can I Retire with Rs 1 Crore in India today?

To me, it seemed that the bug of early retirement had bitten him too as he is just 33 – though the disease seemed in its infancy. 😉

But given my prior knowledge of his not-so-frugal lifestyle (despite good income), I knew that it won’t be possible. And I told him so. His reaction was that of a person who had been slapped hard. 😉

But this got me thinking…

What if someone had a comparatively more frugal lifestyle than my friend or was much older and nearing retirement (around 60), then would Rs 1 crore be enough to retire in India today?

Ofcourse it would depend on various factors. But what do you think?

Suppose you too had Rs 1 Crore today. Can you retire comfortably depending on where you are in life?

I can already hear the ‘No’ssss…

So let me disappoint you all a bit.

For most readers of Stable Investor, a corpus of Rs 1 crore will not be enough to retire.

Sorry. That’s the reality.

But let’s anyway see why Rs 1 crore may not be enough for most people’s retirement now. And if you too are thinking why I have chosen the figure of Rs 1 crore, then its more about the psychological attachment we Indians have with such large figures (more so with the word ‘Crore’) when it comes to saving for long term goals like retirement.

So let’s move on…

Is Rs 1 crore enough for 60-year old to Retire?

Some assumptions (for starters):

  • Annual Expenses – Rs 6 lakh (= Rs 40,000 monthly + additional Rs 1.2 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 – 85 years

In this scenario, the money runs out by 79th year. Here is how:

Retire 1 crore India plan 1

So you see that Rs 1 crore is insufficient to provide for all expenses in 25 years of retirement (from age 60 to 85) in the given scenario.

Your options? Either reduce the expenses or don’t live long enough. Only the former is under your control as the latter (forcing yourself to not live long enough) is suicide and punishable under Indian laws.

But jokes apart, there are few important things to think about this above scenario:

First, in spite of regular expense being Rs 40,000 monthly or Rs 4.8 lac annually, an additional buffer of Rs 1.2 lac has been kept. You may feel that why am I overestimating the expenses, maybe unnecessarily? But this kind of overestimation or let’s say, having such buffers in retirement calculations is advisable. And that is because the retirement portfolio is open to some big risks:

  • 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 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 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 corpus dependence perspective) is 85. It’s entirely possible that you or 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 – Its 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 “8% return every year” is a hypothetical scenario.

A more realistic scenario would be the retiree parking the corpus of Rs 1 crore in a conservative portfolio with 25% equity and 75% 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 25-26 years which eventually delivers 8% CAGR (our original return assumption used earlier). Have a look below:

8 percent retirement returns portfolio

Spend some time on the table above. A portfolio of 25% equity and 75% debt sees fluctuating returns every year. So the actual portfolio return every year varies but the 25+ year CAGR works out to be just what we wanted – a neat 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 1 Crore retirement portfolio from which, withdrawals for retirement expenses are taking place.

Let’s see how long it survives now:

1 crore Retirement Portfolio Utilization

Coincidently, this also survives till the age of 79-80.

You might ask – nothing has changed from the earlier example. But remember that this is just one of the possible sequence of returns. There can be millions of other sequence of year-wise returns.

As I mentioned in the risks of 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.

How?

Let’s simulate it:

  • Portfolio Allocation – 50% Equity & 50% Debt (not so conservative now)
  • Equity Returns in the first 4 years: (-)12% returns each in first 4 years
  • Equity Returns in later years: same as used in the above 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 struggles due to a bad sequence of returns in the first 4 years (and high allocation to that struggling asset, i.e. equity) and gets exhausted in just the 72-73rd year itself:

1 crore Retirement India Utilization

This is exactly what the Sequence of Return Risk is.

A poor sequence of returns in initial years can 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. You cannot choose the sequence. So that risk is always there. There are ways to manage this risk to some extent.

So now you see the difficulty in answering optimistically to questions like Will Rs 1 crore last full life? Or, How long your Rs 1 crore will last?

If you too were looking for the perfect answer to Can I Retire With Rs 1 Crore in India today? then it really depends on a ton of factors. There are no simple thumb rules here.

Retirement planning isn’t exactly rocket science. But its 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 as the Nastiest Problem in Finance. Do read the linked article and you too will be stressed about the idea of retirement calculations themselves! My apologies for painting a bleak picture but I try to share realities on Stable Investor.

And please if you do get hold of any sample Rs 1 crore retirement plan, then remember that it is not necessary that it will be applicable in your case too. Copy-pasting doesn’t work in personal finance.

For all middle class and young people, even though Rs 1 crore sounds like a large number, it won’t be enough because of not-so-low inflation and lack of social security in India. It might still work in certain cases where there are other sources of income post-retirement (like rental, your or/and spouse’s pension, etc.). But if the dependency is only on the retirement corpus, then it can be safely said that:

Don’t retire with Rs 1 crore in India!

Make sure you give retirement planning (or early retirement planning) the serious thought it deserves.

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, travelling, etc. Keeping the goal of retirement separate from other goal ensures that you can give it the undivided attention it deserves and more importantly, you don’t end up dipping into the retirement savings like many people do without realizing its consequences.

And it may sound repetitive but its 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.

Is Rs 1 crore good enough for your retirement is not the right question. You should rather ask How much money is enough 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 is fine. Else, better to take good advice from an advisor for proper retirement planning. Or you can even consider full financial planning that among other things, 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 more importantly, begin soon.

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Mutual Funds Vs Real Estate – Which is better for Investing in India? (2019 Follow up post)

Note – This is a guest post by Ajay. He has previously written on this topic here. Since a few years had passed, he was kind enough to share his views again (with a useful real-life example). Ajay has also authored other interest posts here like How He created a corpus of Rs 3.7 Crore in just 10 years. So over to Ajay for this post…

______

A few years back, I had written on a controversial topic – Investing in Mutual Funds Vs Real Estate in India. I wanted to do a follow-up post on the topic as with each passing year, a new set of people begin asking the same questions:

  • Are mutual funds better than real estate for investing in India?
  • Can investing in real estate be better than investing in equity funds?
  • Mutual Funds Vs Real Estate – which is better
  • And similar versions asking the same things…

So let me try and address this again…

I once again reiterate that there will be many reasons for investing (or let’s say putting money) in real estate – such as peer pressure, family pressure, social status etc. and I am not debating the same. This question of whether you should invest in Real Estate (for investment) or Mutual Funds, can only be answered by you and you alone.

And therefore, this article should ideally be read in that spirit.

The intention of this post is to present facts based on the actual data, from both real estate and mutual funds from an investor’s perspective and ofcourse, my opinion on the same. 🙂

Also, as stated in the earlier post:

  • A home is a place to live and it should not be linked to one’s investment strategy. There should not be any second thought about buying your 1st property for self-occupancy whether with or without tax benefits.
  • I am aware and acknowledge the fact that being Equity and Equity Funds oriented investor, my views will tend to be biased towards Equity investments than Real Estate investments.
  • The experience and the actual investment returns of Real Estate investors vary from location to location. And therefore, many of you may not agree with the conclusion or findings of this post. Nevertheless, through this article, I have analyzed the actual data from the Real estate and mutual fund investments in India.

So let’s go ahead…

Real Estate Investment

In August-2010, a friend of mine decided to buy a 1200 Square feet (Sq.ft). Flat in the outskirts of Bangalore (@ Rs 2290 per Sq.ft.) through a housing loan. The details are as follows:

  • Cost of Flat (including Car parking, Utilities, Legal costs, Deposits etc.): Rs 31,39,500
  • VAT, Registration & Stamp paper: Rs 3,02,566

Total Cost of Flat (all Inclusive): Rs 34,42,066

To fund this purchase, he used:

  • His own money (Rs 12,42,066) and
  • Took a home loan for Rs 22,00,000 from a bank.

The loan EMI was Rs.21,343.

As like many of you committed individuals, he paid all the loan EMI on or before the due dates, and also increased the EMI amounts as his salary increased during the loan tenure. He also made part payments many times to accelerate the loan closure and to settle the loan as early as possible. He also put this house on monthly rental as he had to live in another city for professional reasons.

Kind of an ideal way of managing a home loan you can say.

Now let’s look at the numbers below (if you are interested in the actual loan cashflow data):

MF SIP vs Real Estate

Now the loan ended recently (in May-2019).

So I sat with my friend and re-calculated the actual cost of his flat:

Total Cost (Flat in Hand) – Rs 34.4 lac

Downpayment – Rs 12.42 lac

Loan – Rs 22.00 lac

Total EMI Paid – Rs 25.73 lac

Total Initial Downpayment & Prepayments – Rs 18.67 lac

Actual Cost of Flat (excl. rent)- Rs 44.40 lac

Rent Received – Rs 11.36 lac

Net Amount Paid for Flat – Rs 33.04 lac

These are real numbers. Real actual numbers.

Let’s move further.

With the loan completed in almost 9 years time, and with the general assumption of property appreciation, we expected the property to fetch at least double the investment (value) of net amount paid for the flat.

So we expected Rs 66 lac from the sale of the property.

However, we did not find a single buyer even at Rs 55 lac!!

From the local brokers and available market information, we got to know that the property could be sold immediately for Rs 40 to 42 lac and if we were lucky, it can be sold for a stretched value of Rs 45-48 lac (let’s say max Rs 50 lac). Also, there will be capital gains tax on the profit amount.

While it is concerning that there was no value appreciation despite the area is connected and having all the basic amenities in the near vicinity, I decided to take this as a case study to see an alternative scenario – where investments had been made in Mutual Funds. I wanted to know what would have been the outcome.

Mutual Fund Investment

I chose 3 funds to feed the investment data in MF (same amount invested as EMI, downpayment and prepayment on the same date as the loan payments were made).

The choice of funds were as follows:

  • 1 decent performing fund (Franklin India Equity),
  • 1 market performer (UTI Nifty 50 Index Fund), and
  • 1 worst performing fund (LIC Multi-Cap Fund)

Since the direct plans weren’t available in 2010, regular plan (i.e. ones with higher fee and lower returns) were chosen for data crunching. So here are the details below (or you can skip and go straight to the summary just after the table):

Mutual Fund SIP vs Real Estate India

Summary of the above investment table is as follows:

Mutual Fund SIP vs Real Estate 2019

Conclusion:

From the table above, it is clearly evident that if instead of buying the flat, the investment was rather made in the worst performing mutual fund, it would still have given returns of Rs 55.5 lac against Rs 40-48 lac current market value of the flat.

Investment in the index fund would have fetched a much better Rs 67.94 lac. And if you luckily had invested in a very good fund, then it would have given you about Rs 78+ lac.

Not bad. Right?

I know what many of you might be thinking…

While we can debate the time of entry in mutual funds, time of entry or locality or high cost paid for the property etc., I still find merit in investing in Mutual Funds instead of Real Estate flats as an investment. And I very well know that irrespective of the above data favouring MFs, many will still argue in favour of the real estate. I leave the decision to you.

An important point that shouldn’t be missed in this Mutual fund vs real estate debate is the importance of selecting a good fund (or avoiding bad ones) for investment. And if we stretch this topic a little, it opens up another separate debate on the Active versus Passive Funds which I guess is best left for another post.

Note: In the calculation of Real Estate, the cost for Home Insurance, Home Maintenance, etc. was not included. Also, the Rs 2 Lac tax savings during this tenure was not considered as there will be a capital gain tax on property investment too. Equity investment until March-2018 were are tax-free and therefore, the tax implication would be negligible in case of equity investment in the above case study’s tenure.

Concluding Thoughts

As stated in the previous post on the debate of real estate vs mutual funds, I once again have the same concluding thoughts.

And this is a repetition of the earlier statement. One should not give any second thought about buying the 1st house/property for self-occupancy, whether it is with or without tax benefits.

However, based on the comparative analysis done above, one should think twice (or even ten times…) before buying a home for investment purpose. One should carefully weigh all the available data (Or as much reliable information you have) and then take a wise call.

Just because your friend or family members are investing in real estate does not mean that you should also do it.

Diversification aspect should also be looked at. But you should not avoid evaluating your own financial goals. This is extremely critical. And don’t just evaluate and feel helpless about it. Find out how you can plan to achieve them and then decide whether you actually need (or want) to ‘invest’ in real estate or not. Different people will get different answers.

Without doubt, a physical asset (like a house) will always give huge mental comfort and satisfaction over other financial assets like mutual funds. But it is also true that it may not always be the best available investment option. In fact, investing in house funded through a loan, is a huge long-term liability – which in many cases, chokes the person’s ability to save and invest for other goals in right instruments.

In my opinion (and it is mine so you can choose to ignore it), after the purchase of the 1st  property for self-use, if there is any surplus cash left to invest, you should invest it as per your asset allocation (which includes debt, equity, gold & real estate). If the asset allocation permits you to invest in real estate, you may very well do it. But if it doesn’t, then you should refrain from investing in it just because it’s what everyone else around you is doing.

And please, investing in real estate for the sake of saving taxes may not necessarily be the best thing to do. If need be, do not hesitate in taking financial advice to put in place a solid investment plan for your life.

As stated at the beginning of this article too, this is one hell of a controversial debate.

And there is no one straight-forward or logical answer to it. There are no thumb rules either. You and you alone can answer the question of Real Estate Vs Mutual Funds.

In this article (and in the earlier one), all I have tried is to attempt to clear the myth that “Real estate investing is the only best Investment Option” available for everyone. As you might have noticed (if you have spent some time reading the tables above), that all calculations have been done by estimating the returns net of expenses. We just cannot ignore expenses like those many who just tell you the number of times their property has appreciated in value. It’s not correct.

Hope you found this analysis interesting and useful.

State of Indian Stock Markets – September 2018

This is the September 2018 update for the State of Indian Stock Markets and includes historical analysis and Heat Maps of Nifty50 as well as Nifty500‘s key ratios, namely P/E, P/BV ratios and Dividend Yield.

Please remember that these numbers are averages of P/E, P/BV and Dividend Yield in each month. Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month. Also, note that NSE publishes PE ratios based on standalone numbers and not consolidated numbers (Read why this may matter too).

Caution – Never make any investment decision based on just one or two ‘average’ indicators (Why?) At most, treat these heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.

So here are the Nifty 50 Heat Maps…

Historical P/E Ratios – Nifty 50 (Monthly Average)

Historical Nifty PE 2018 September

P/E Ratio (on last day of September 2018): 26.44
P/E Ratio (on last day of August 2018): 28.40

The 12-month trend of P/E has been as follows:

 

Nifty 12 Month PE Trend September 2018

And here are the average figures of Nifty50’s PE for some recent periods:

Nifty Average PE Trends September 2018

Historical P/BV Ratios – Nifty 50

Historical Nifty Book Value 2018 September

P/BV Ratio (on last day of September 2018): 3.47
P/BV Ratio (on last day of August 2018): 3.76

Historical Dividend Yield – Nifty 50

Historical Nifty Dividend Yield 2018 September

Dividend Yield (on last day of September 2018): 1.23%
Dividend Yield (on last day of August 2018): 1.15%

Now, to the historical analysis of Nifty500 companies…

As the name suggests, Nifty500 is made up of top 500 companies which represent about 95% of the free float market capitalization of the stocks listed on NSE (March 2017).

Nifty50 on other hand is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 63% of the free float market capitalization of the NSE listed stocks (March 2017).

So obviously, Nifty500 is comparatively a much broader index than Nifty50.

Historical P/E Ratios – Nifty 500

Historical Nifty 500 PE 2018 September

P/E Ratio (on last day of September 2018): 30.2
P/E Ratio (on last day of August 2018): 34.5

Historical P/BV Ratios – Nifty 500

Historical Nifty 500 Book Value 2018 September

P/BV Ratio (on last day of September 2018): 3.24
P/BV Ratio (on last day of August 2018): 3.52

Historical Dividend Yield – Nifty 500

Historical Nifty 500 Dividend Yield 2018 September

Dividend Yield (on last day of September 2018): 1.15%
Dividend Yield (on last day of August 2018): 1.04%

You can read the previous update here. The State of Markets section has also been updated with new Nifty heat maps (link).

For a detailed analysis of how much returns you can expect depending on when the investments have been made (at various P/E, P/BV and Dividend Yield levels), please have a look at these 3 posts:

Difference between Financial Independence Vs Early Retirement Vs Financial Freedom

Financial Independence Early Retirement Financial Freedom

The words like Financial Independence, Early Retirement and Financial Freedom are slowly but surely finding a way into the thoughts and vocabulary of us Indians.

Their numbers are still very small but surely, there are people who are not just asking ‘How much is enough to retire in India?’ – Instead, they are asking ‘How much is enough to Retire Early in India?’

The interest is definitely there as I myself got some coverage in leading Indian newspapers for aiming for financial independence (here and here).

Regular retirement vs Early retirement – some people are considering the latter. 🙂 And to be honest, it’s not hard to understand the appeal of early retirement or financial independence. Just ask this question a little loudly – How much money is enough to never work again in India? It sounds nice and liberating. Isn’t it?

I regularly receive questions like these on mail from readers – How much money is enough to retire at 40 in India? How much money is enough to retire at 45 in India? How much money is enough to retire at 50 in India?

So the interest is really there. But I have already written a lot about this topic earlier in FIRE – Financial Independence and Retiring Early.

In this post, I wanted to address the difference between Financial Independence, Early Retirement and Financial freedom as I see it. People use these terms interchangeably. But there are some differences.

I must also tell you that there are no perfect definitions here. So you can interpret these words as you like – as long as it helps you achieve what you are aiming for.

Difference between Financial Independence Vs Early Retirement

Financial independence and Early Retirement are 2 different things, but which are linked to each other in a way.

So let me try to explain it simply.

Financial Independence means having enough assets (or/and income generating assets) that you do not have to work for money again. Now here is the important part – you may still decide to continue doing what you are doing even after achieving Financial Independence.

Early Retirement, on the other hand, means actually retiring (and doing almost no income-generating work) because you have achieved Financial Independence.

For obvious reasons, if you plan to retire early and never work again, then you will need a much larger corpus than if you were to be simply financially independent.

Together, both FI (Financial Independence) and Early Retirement (RE) are referred to as F.I.R.E. but remember that there is a subtle difference between financial independence and early retirement.

That brings me to another aspect of FIRE.

Different Types of FIRE (Financial Independence Early Retirement)

One of the main questions when it comes to FIRE is ‘How much do I need to retire early?

As you might have guessed, the answer is different for different people.

People’s lifestyles, their spending habits, financial situations, their real ability to take risks and several other factors influence their perception of how much might be enough for retirement. And therefore, the amount needed to achieve FIRE is different for everyone. But still, there are two major types of FIRE that people use as references:

  • LEAN Fire – This is a low-cost approach to FIRE. The idea is to reduce your expenses to the bare minimum (become ultra frugal) and achieve FIRE as soon as possible. It’s about having a life rich on time but short on luxuries. Lower the expenses, lower will be the FIRE corpus needed and sooner one can achieve it. That’s the logic here. For people targeting LEAN Fire, achieving the freedom at the earliest possible age is the most important factor.
  • FAT Fire – This is at the opposite end to LEAN Fire on the spectrum of FIRE. The goal is to retire early but not at the cost of quality. People who aim for FAT Fire also want to achieve it in a way so as to have enough for a better lifestyle. The corpus required for this is higher than LEAN Fire.

Both of these approaches are at the opposite ends. And it’s a matter of personal choice as to which one is better suited for whom.

In fact, there are no strict definitions. You can even label the levels in between as FIRE Level 1, FIRE Level 2, FIRE Level 3, etc. and take an aim at what you think is more suited for you.

And if you do an online search, you will find blogs for various levels – early retirement blogs, early retirement extreme blogs, frugal FIRE blog and what not.

So after having discussed Early Retirement and Financial Independence (both Lean and Fat FIREs), let’s tackle something related…

What is Financial Freedom?

I must warn again that there are no perfect definitions here. But I will try to say what I feel.

With Financial Independence (assuming something between LEAN and FAT), you are more or less locked into your chosen lifestyle. So if you chose LEAN FIRE and call it a day, then you really need to live frugally all your life because your corpus is smaller. On the other hand, if you chose FAT FIRE and took early retirement, then you can live a better lifestyle.

Now comes the difficult part to explain. 🙂

Financial Freedom I feel means that you live a much better life than what was possible in LEAN-Fire but also have the ‘real freedom’ to do few unplanned things (and spend on them) which you may not consider doing if you had a frugal lifestyle. In a way, it’s like having a FAT-Fire but with more flexibility.

Let me try with a mathematical example:

Suppose you are planning to achieve FIRE and have the following expenses:

  • Basic Expenses (Frugal Living) – Rs 40,000 per month
  • Discretionary Expenses (Better Living) – Rs 20,000 per month

Now if you are going for the LEAN-Fire, then you are mathematically allowed to spend Rs 40,000 a month. So that’s Rs 4.8 lac per year.

If you are going for FAT-Fire, then it allows you to live a life of Rs 60,000 per month kind of lifestyle (Rs 40K basic + Rs 20K discretionary expenses). That’s about Rs 7.2 lac per year.

Remember, having a FIRE corpus means that these kinds of expenses should be possible for you (with increasing inflation) for the rest of your life. And for early retirees, this means several decades!

Now comes Financial Freedom…

If I have the financial freedom, then mathematically, I should be comfortably able to spend annually:

  • Basic Expenses – Rs 40,000 x 12 months = Rs 4.8 lac, plus
  • Discretionary Expense – Rs 20,000 x 12 months = Rs 2.4 lac, plus
  • Another level of (optional) discretionary expenses = Rs 20,000 x 12 months = Rs 2.4 lac
  • Some unplanned luxuries (or unexpected expenses buffer) on an annual basis – Another lac or so

That’s real financial freedom! You can spend extra on few things here and there without having to spend sleepless nights thinking whether your corpus will run out before you run out of years or not. It also provides you with the buffer to spend in case of emergencies.

Achieving financial freedom also gives you the freedom from worry about money. And that’s the real freedom I guess.

So if I have to summarize, the timeline for corpus achievement goes like this:

LEAN F.I.   —>   FAT F.I.   —>   Financial Freedom

Early Retirement is up to the individual as to when he wishes to quit in between these levels. You can even look at these 3 levels as follows:

  • How much do I need to retire early?
  • How much do I need to retire early comfortably?
  • How much money do I need to retire early and never work again? 🙂

More Thoughts

I know a lot of people feel that FIRE is just about cutting your expenses and saving more. But that is not rightly completely. I would say that its also about simplifying and redesigning your life, which obviously gives you more time to focus on other things.

Aiming for FIRE helps you test your relationship with money. And it’s like asking yourself as to ‘What would you do if you didn’t have to work for money ever again?’ It also helps you decouple the idea of happiness from owning material things. It’s amazing when you actually realize it.

And one more thing. Achieving early retirement (and not just financial independence) not just requires cutting back on expenses. It also requires you to have a decent income from which you can save a lot.

If you are serious about achieving financial independence, then you should begin early. There are various thumb rules for financial independence and early retirement (FIRE). One such rule is that depending on when you wish to retire, you should have about 20-30x your annual expenses in your FIRE corpus. But let me tell you that thumb rules are good to begin with. Once you start your journey and are making progress, you need to ask more serious questions like:

  • How much money (Corpus) do I require for financial independence and early retirement (FIRE)?
  • How long will my corpus last?
  • How much can I draw from the corpus each year?
  • Can I draw more than what I answered in the above question, atleast in some years?
  • What will the inflation be in my retirement years?
  • What are my expected returns?
  • What will be the impact on your corpus if markets enter a bear phase just at the start?
  • What if I need to spend some money on unplanned and unexpected emergencies?
  • How will my other financial goals be tackled?
  • Have I saved enough for these other non-retirement financial goals?
  • And several other questions

Early retirement is an alluring goal or dream. No doubt about that. But to be brutally honest, very few aim for it. And even fewer can really achieve it. Most people are generally too late to begin with.

And apart from money, what does it take to retire early? …It takes a lot of focus and determination and a thick skin. And that’s because if you discuss these things with other people, you are sure to find many who will ridicule you. But if you are serious about it, then it means you will be going against the crowd and you will have to give a f*** to societal norms. If you don’t, then be ready for a regular retirement. That’s good and traditional too. 🙂 And there is ofcourse more to life than just money.

People feel that early retirement is a sort of hack to sort out their life! But I feel that retired life has too many other important aspects than just money. You really need to find out what you will do with all those years?? 🙂

If you are asking or searching for answers to questions like ‘How to plan for early retirement?’, then please beware of all the self-confessed best early retirement blogs, financial independence retire early blog, online resources, early retirement calculators, retirement corpus calculator India, financial independence number calculator, etc. Everyone has a different need and hence, the Financial Independence number and the Financial Freedom Plan will be different for everyone.

Time to end this article now.

In the debate of Financial Independence Vs. Regular Retirement, I would say that I prefer the FI. …But that’s my choice. If you feel that even the regular retirement is fine for you, then obviously that’s right for you and you should stick to regular retirement planning. You should never be forced to take a side because of the undue influence of others. Your life, your choice.

How to retire early at 40? How to retire early at 45? How to retire early at 50? What year can I retire? – Before you begin asking these questions, just stop and think for a moment as to is this really what you want? Or you are running away from something?

As for me, my aim is Financial Independence (and Financial Freedom). As for Early Retirement, I am too much in love with what I do (Investment Advisory and Goal-based Financial Planning) to currently think about retirement. 🙂 And that is the reason I focus on Financial Independence over Early Retirement.

But do not be disheartened if some of what I say seems too difficult to achieve. If you are willing to do what is necessary to achieve financial freedom, then let me tell you one thing – IT CAN BE DONE. I repeat. IT CAN BE DONE.

State of Indian Stock Markets – August 2018

This is the August 2018 update for the State of Indian Stock Markets and includes historical analysis and Heat Maps of Nifty50 as well as Nifty500‘s key ratios, namely P/E, P/BV ratios and Dividend Yield.

Please remember that these numbers are averages of P/E, P/BV and Dividend Yield in each month. Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month. Also, note that NSE publishes PE ratios based on standalone numbers and not consolidated numbers (Read why this may matter too).

Caution – Never make any investment decision based on just one or two ‘average’ indicators (Why?) At most, treat these heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.

So here are the Nifty 50 Heat Maps…

Historical P/E Ratios – Nifty 50 (Monthly Average)

Historical Nifty PE 2018 August

P/E Ratio (on last day of August 2018): 28.40
P/E Ratio (on last day of July 2018): 28.22

The 12-month trend of P/E has been as follows:

Nifty Average PE Trends August 2018

 

And here are the average figures of Nifty50’s PE for some recent periods:

Nifty 12 Month PE Trend August 2018

Historical P/BV Ratios – Nifty 50

Historical Nifty Book Value 2018 August

P/BV Ratio (on last day of August 2018): 3.76
P/BV Ratio (on last day of July 2018): 3.70

Historical Dividend Yield – Nifty 50

Historical Nifty Dividend Yield 2018 August

Dividend Yield (on last day of August 2018): 1.15%
Dividend Yield (on last day of July 2018): 1.18%

Now, to the historical analysis of Nifty500 companies…

As the name suggests, Nifty500 is made up of top 500 companies which represent about 95% of the free float market capitalization of the stocks listed on NSE (March 2017).

Nifty50 on other hand is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 63% of the free float market capitalization of the NSE listed stocks (March 2017).

So obviously, Nifty500 is comparatively a much broader index than Nifty50.

Historical P/E Ratios – Nifty 500

Historical Nifty 500 PE 2018 August

P/E Ratio (on last day of August 2018): 34.50
P/E Ratio (on last day of July 2018): 33.59

Historical P/BV Ratios – Nifty 500

Historical Nifty 500 Book Value 2018 August

P/BV Ratio (on last day of August 2018): 3.52
P/BV Ratio (on last day of July 2018): 3.45

Historical Dividend Yield – Nifty 500

Historical Nifty 500 Dividend Yield 2018 August

Dividend Yield (on last day of August 2018): 1.04%
Dividend Yield (on last day of July 2018): 1.08%

You can read the previous update here. The State of Markets section has also been updated with new Nifty heat maps (link).

For a detailed analysis of how much returns you can expect depending on when the investments have been made (at various P/E, P/BV and Dividend Yield levels), please have a look at these 3 posts:

State of Indian Stock Markets – June 2018

This is the June 2018 update for the State of Indian Stock Markets and includes historical analysis and Heat Maps of Nifty50 as well as Nifty500‘s key ratios, namely P/E, P/BV ratios and Dividend Yield.

Please remember that these numbers are averages of P/E, P/BV and Dividend Yield in each month. Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month. Also, note that NSE publishes PE ratios based on standalone numbers and not consolidated numbers (Read why this may matter too).

Caution – Never make any investment decision based on just one or two ‘average’ indicators (Why?) At most, treat these heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.

So here are the Nifty 50 Heat Maps…

Historical P/E Ratios – Nifty 50 (Monthly Average)

Historical Nifty PE 2018 June

P/E Ratio (on last day of June 2018): 25.90
P/E Ratio (on last day of May 2018): 27.19

The 12-month trend of P/E has been as follows:

Nifty 12 Month PE Trend June 2018

And here are the average figures of Nifty50’s PE for some recent periods:

Nifty Average PE Trends June 2018

Historical P/BV Ratios – Nifty 50 (Monthly Average)

Historical Nifty Book Value 2018 June

P/BV Ratio (on last day of June 2018): 3.61
P/BV Ratio (on last day of May 2018): 3.69

Historical Dividend Yield – Nifty 50 (Monthly Average)

Historical Nifty Dividend Yield 2018 June

Dividend Yield (on last day of June 2018): 1.22%
Dividend Yield (on last day of May 2018): 1.23%

Now, to the historical analysis of Nifty500 companies…

As the name suggests, Nifty500 is made up of top 500 companies which represent about 95% of the free float market capitalization of the stocks listed on NSE (March 2017).

Nifty50 on other hand is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 63% of the free float market capitalization of the NSE listed stocks (March 2017).

So obviously, Nifty500 is comparatively a much broader index than Nifty50.

Historical P/E Ratios – Nifty 500 (Monthly Average)

Historical Nifty 500 PE 2018 June

P/E Ratio (on last day of June 2018): 30.47
P/E Ratio (on last day of May 2018): 31.59

Historical P/BV Ratios – Nifty 500 (Monthly Average)

Historical Nifty 500 Book Value 2018 June

P/BV Ratio (on last day of June 2018): 3.37
P/BV Ratio (on last day of May 2018): 3.49

Historical Dividend Yield – Nifty 500 (Monthly Average)

Historical Nifty 500 Dividend Yield 2018 June

Dividend Yield (on last day of June 2018): 1.09%
Dividend Yield (on last day of May 2018): 1.08%

You can read the previous update here. The State of Markets section has also been updated with new Nifty heat maps (link).

For a detailed analysis of how much returns you can expect depending on when the investments have been made (at various P/E, P/BV and Dividend Yield levels), please have a look at these 3 posts:

State of Indian Stock Markets – April 2018

This is the April 2018 update for the State of Indian Stock Markets and includes historical analysis and Heat Maps of Nifty50 as well as Nifty500‘s key ratios, namely P/E, P/BV ratios and Dividend Yield.

Please remember that these numbers are averages of P/E, P/BV and Dividend Yield in each month. Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month. Also, note that NSE publishes PE ratios based on standalone numbers and not consolidated numbers (Read why this may matter too).

Caution – Never make any investment decision based on just one or two ‘average’ indicators (Why?) At most, treat these heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.

So here are the Nifty 50 Heat Maps…

Historical P/E Ratios – Nifty 50 (Monthly Average)

Historical Nifty PE 2018 April

P/E Ratio (on last day of April 2018): 26.66
P/E Ratio (on last day of March 2018): 24.66

The 12-month trend of P/E has been as follows:

Nifty 12 Month PE Trend April 2018

And here are the average figures of Nifty50’s PE for some recent periods:

Nifty Average PE Trends April 2018

Historical P/BV Ratios – Nifty 50 (Monthly Average)

Historical Nifty Book Value 2018 April

P/BV Ratio (on last day of April 2018): 3.69
P/BV Ratio (on last day of March 2018): 3.42

Historical Dividend Yield – Nifty 50 (Monthly Average)

Historical Nifty Dividend Yield 2018 April

Dividend Yield (on last day of April 2018): 1.19%
Dividend Yield (on last day of March 2018): 1.29%

Now, to the historical analysis of Nifty500 companies…

As the name suggests, Nifty500 is made up of top 500 companies which represent about 95% of the free float market capitalization of the stocks listed on NSE (March 2017).

Nifty50 on other hand is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 63% of the free float market capitalization of the NSE listed stocks (March 2017).

So obviously, Nifty500 is comparatively a much broader index than Nifty50.

Historical P/E Ratios – Nifty 500 (Monthly Average)

Historical Nifty 500 PE 2018 April

P/E Ratio (on last day of April 2018): 31.36
P/E Ratio (on last day of March 2018): 29.65

Historical P/BV Ratios – Nifty 500 (Monthly Average)

Historical Nifty 500 Book Value 2018 April

P/BV Ratio (on last day of April 2018): 3.56
P/BV Ratio (on last day of March 2018): 3.27

Historical Dividend Yield – Nifty 500 (Monthly Average)

Historical Nifty 500 Dividend Yield 2018 April

Dividend Yield (on last day of April 2018): 1.04%
Dividend Yield (on last day of March 2018): 1.12%

You can read the previous month’s update here. The State of Markets section has also been updated with new Nifty heat maps (link).

For a detailed analysis of how much returns you can expect depending on when the investments have been made (at various P/E, P/BV and Dividend Yield levels), please have a look at these 3 posts:

State of Indian Stock Markets – December 2017

Happy New Year everyone!

This is the December 2017 update for the State of Indian Stock Markets and includes historical analysis and Heat Maps of Nifty50 as well as Nifty500‘s key ratios, namely P/E, P/BV ratios and Dividend Yield.

Please remember that these numbers are averages of P/E, P/BV and Dividend Yield in each month. Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month. Also note that NSE publishes PE ratios based on standalone numbers and not consolidated numbers (Read why this may matter too).

Caution – Never make any investment decision based on just one or two ‘average’ indicators (Why?) At most, treat these heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.

So here are the Nifty 50 Heat Maps…

Historical P/E Ratios – Nifty 50 (Monthly Average)

Historical Nifty PE 2017 December

P/E Ratio (on last day of December 2017): 26.92
P/E Ratio (on last day of November 2017): 26.16

The 12-month trend of P/E has been as follows:

Nifty 12 Month PE Trend December 2017

Historical P/BV Ratios – Nifty 50 (Monthly Average)

Historical Nifty Book Value 2017 December

P/BV Ratio (on last day of December 2017): 3.55
P/BV Ratio (on last day of November 2017): 3.45

Historical Dividend Yield – Nifty 50 (Monthly Average)

Historical Nifty Dividend Yield 2017 December

Dividend Yield (on last day of December 2017): 1.08%
Dividend Yield (on last day of November 2017): 1.11%

Now, to the historical analysis of Nifty500 companies…

As the name suggests, Nifty500 is made up of top 500 companies which represent about 95% of the free float market capitalization of the stocks listed on NSE (March 2017).

Nifty50 on other hand is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 63% of the free float market capitalization of the NSE listed stocks (March 2017).

So obviously, Nifty500 is comparatively a much broader index than Nifty50.

Historical P/E Ratios – Nifty 500 (Monthly Average)

Historical Nifty 500 PE 2017 December

P/E Ratio (on last day of December 2017): 32.55
P/E Ratio (on last day of November 2017): 31.44

Historical P/BV Ratios – Nifty 500 (Monthly Average)

Historical Nifty 500 Book Value 2017 December

P/BV Ratio (on last day of December 2017): 3.46
P/BV Ratio (on last day of November 2017): 3.33

Historical Dividend Yield – Nifty 500 (Monthly Average)

Historical Nifty 500 Dividend Yield 2017 December

Dividend Yield (on last day of December 2017): 0.91%
Dividend Yield (on last day of November 2017): 0.95%

You can read the previous month’s update here. The State of Markets section has also been updated with new Nifty heat maps (link).

For a detailed analysis of how much returns you can expect depending on when the investments have been made (at various P/E, P/BV and Dividend Yield levels), please have a look at these 3 posts: