All things Money Thread

Discussion in 'Living in India' started by Big Daddy, Jul 20, 2011.

  1. Big Daddy

    Big Daddy Super User

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    Since I found money matters are scattered throughout this board, I decided to start this one. Mods, if inappropriate, then please delete or merge. I would like to know answers to following rhetoric questions.

    1. How much money is enough for you to retire? How you justify this number?
    2. What math you use to compute what is enough for you to retire?
    3. What asset allocation you would prefer to keep your retirement safe (e.g., gold, cash, stocks, annuities bonds etc.).
     
  2. Yogesh Sarkar

    Yogesh Sarkar Administrator

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    Haven’t really done any calculations, as I haven’t thought about retiring, However when I think about it now, I guess one needs the following:

    1.5x the annual income you are making today (if you are satisfied with it), compounded by 8% annually (to take care of inflation) and multiplied by 15 - 20 times.

    This is to ensure that even after retiring; you can still keep on investing, instead of just consuming the money you have saved up. This is essential, because you won’t get raises after retirement and inflation would keep on climbing.


    My personal preference as of now is in:

    1. Equity based mutual funds.
    2. Public Provident Fund.
    3. Bank Fixed and Recurring Deposits.
    4. Gold.
    5. Cash.

    Have only thought about saving and have somewhat started it, only 3-4 months ago, so still a big time novice and looking forward to the opinion of others as the above is just a random calculation I cooked up few minutes ago.

    Topic moved to Living in India.
     
  3. Big Daddy

    Big Daddy Super User

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    I would also consider lifetime Annuity and that is tricky part. In an Annuity you permanently give up fixed amount of your money to a company for a constant monthly income guaranteed for life. With Annuity there is guarantee that your monthly income will not fall below a certain level as long as you live. Some Annuities adjust monthly income for inflation but that does not happen too often.

    I would consider:

    Social security (provident funds)
    Annuities
    Dividends from Stocks (only Index ETFs) and Bonds
    Liquid Assets (gold, savings account and money market)

    Despite what other people say, I think more money is required in retirement because of cost of health care will be higher in retirement. I think something like 1.2X pre-retirement income.

    Given changing culture in India, adults in future are more likely to kick their parents out of their homes than adults today. So, cost of retirement is only going to be higher in future.

    The biggest variable to stay solvent in retirement is the age at which you retire. I will definitely work until the age of 70, longer if possible. Here is one useful table that provides some guidelines (http://www.free-financial-advice.net/retire-early.html).

    Mathematically, I think you are ready to retire when following applies (regardless of your age):

    After-Tax Annual Dividends from Stocks (only Index ETFs) and Bonds > Your Annual Expenses.

    As you get older, the need for additional income will be satisfied by other sources (social security, public provident fund etc.). Also you should be reinvesting capital gains from the stocks so that your annual dividends from stocks also keep rising in time.

    I would like to hear from some of the retired people and see what they have to say on this topic.
     
    Last edited: Jul 21, 2011
  4. PRODiGY

    PRODiGY Member

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    does no one consider real estate as a suitable investment and/or as a revenue option upon retirement ?
     
  5. Big Daddy

    Big Daddy Super User

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    I included real-estate-investment-trust (REIT) in stock ETFs. I have invested in "VNQ" ticker symbol. I do own a house, but additional real-estate is not something I am looking forward to. Maintenance, taxes become too much of a hassle for me. If I were to get married then I would buy another home which I would use when my wife becomes unbearable or if her parents visit us :grin:. Otherwise, I will continue with what I am doing.

    So, yes real-estate is important as long as it is REITs and not land, homes, rental property etc. REITs give better dividends than stocks and should be used as portfolio diversification measure.
     
  6. Yogesh Sarkar

    Yogesh Sarkar Administrator

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    I am quite sure a lot of us would want to invest in real estate, however it is beyond the means of many.
     
  7. freespirit999

    freespirit999 New Member

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    I agree. However, like most things, there is always another way around. Here's some food for thought. Some people open recurring fixed deposit accounts and say Mr. X invests :r:5000 in one such scheme which returns approx. 8-9% APR (pre-compounding) per year. Instead or even better along with this, if he decides to save :r:30,000 and then approach niche land plot developers (usually small town folks who own acres of ancestral farm land which they convert to NA and sell small plots to private investors). I have noticed that in states such as Maharashtra (which I am most familiar with), MP, Rajasthan, Gujrat, Karnataka and Andhra Pradesh, it is relatively easy to find ~1500-2000 sq.ft. plots in the region of :r:1.2L to 1.5L

    The developers need to sell plots to earn and they are not professionals (at least most I interacted with aren't). For this reason they have internal finance schemes in place (0% APR over 48 months is a typical example). Basically all that means is if you pay :r:25,000 - 30,000 as a down payment, the rest of the amount is divided in 36 monthly installments free of interest. An illustration:

    Cost: :r:1,45,000 for a 1500 sq.ft. NA plot with road access, water and electricity line
    Down payment: :r:25,000
    EMI: :r:2,500/month for 48 months with no penalty for pre-payment

    Strategy: If Mr.X can afford :r:5,000 in a recurring FD per month, he can certainly afford this. So buy such plots instead of FD or as I mentioned earlier, in addition to your FD...try to pre-pay in less than 48 months. You get the land, and as we all know, if location is chosen wisely, returns can be a lot more than 8-9% APR per year as in case of the FD above. Also you pay half the amount you would for FD :)r:2,500 instead of :r:5,000) If possible, save :r:60,000 and buy 2 such plots for :r:5,000 per month. Over a period of 10 years for example, one can build a huge amount of capital using this method.

    Risk: If you don't find such scheme in your state, having the guts to venture in another state. It can be risky, but then its still a part of India...and with right pre-purchase checks and ensuring all paperwork is legal and the property is well-fenced and monitored at least once every 2 months, one can rest assured that the risk is worth taking.

    So I suppose this is an easier way to venture into property investments. Treat small plots of land like FDs, if you can take the plunge, you stand to gain a lot more than FDs and with less risk than investing the same amount in stocks. The only catch is our ability to identify such opportunities and negotiate the right price.
     
    Last edited: Feb 10, 2012
  8. anupkrverma

    anupkrverma Active Member

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    @freespirit
    I believe if u post this in the ongoing retirement thread it would welcome more comments and queries.
     
  9. freespirit999

    freespirit999 New Member

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    Thanks for the suggestion, re-posted in that thread :)
     
  10. citymonk

    citymonk Super User

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