Retirement corpus: How much Indians must save & withdraw ? Detailed Research ft. Ravi Saraogi
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- Опубликовано: 9 июн 2024
- You would have often heard you need 25X of annual expenses as a retirement corpus. Ravi Saraogi, a Chartered Financial Analyst and co-founder at Samasthiti Advisors, debunked that notion in a conversation with Satya Sontanam from Zerodha Varsity.
Ravi shares the findings of a recent study that he has been a part of on how much Indians must save and withdraw to have a decent retirement life. Watch the full video to get answers about the financial aspects of retirement, from building the corpus to withdrawal.
Link to the calculator - samasthiti.in/samasthitis-ret...
Time Stamps
00:00 - 1:26 - Coming Up
1:27 - 2:48 - Intro
2:49 - 4:20 - Calculating retirement corpus
4:21 - 8:22 - Safe withdrawal rate in US Vs India
8:23 - 10:10 - Why do Indians need to save more?
10:11 - 12:44 - Retirement planning in India
12:45 - 14:53 - Research on how much to save
14:54 - 17:04 - Asset allocation at age 60
17:05 - 19: 18 - Withdrawing from retirement kitty
19:19 - 25:36 - Risk of higher equity allocation
25:37 - 26:19 - Tax consideration
26:20 - 27:35 - Calculator
27:36 - 27:50 - Outro
Links to Refer
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#analysis #investing #finance #stockmarket #financialeducation #varsity #zerodha #retirement #planning #personal #100 #corpus #sip
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These calculations are always threatening for people who are about to retire, and in another 5 to 10 years.
Expenses also continue to reduce... first year retirement has travel, eating out and lot more expenses which will get continue to reduce. Medical expenses will continue to raise.
Who ever can't have 33 times of yearly expenses, don't loose your heart.
Continue to have adequate medical insurance, try to control your expenses.
Please do not lose heart. The purpose of our research is to encourage people to plan, rather than to despair. With planning, we can come out of even difficult circumstances.
Can we pause to appreciate the host too!? She was Bang on with her questions and how she was navigating the conversation.
Yes, Satya's questions really helped in breaking down the research into simple to understand parts. Otherwise, planners and researchers have a bad habit of complicating things :) - Ravi
Yes, much better than the interrupting beer biceps guy
The equity allocation can be higher than what is suggested if the withdrawal is not made annually. If expenses for the next 5 years is kept in debt instruments then there is no need to sell equity each year. In the bad years for equity, the expense fund is not refilled and when there is a recovery, refill it upto what is needed for the next 5 years. This way the volatility in the equity can be delinked from the liquidity needed for expenses.
My line of thinking is same if the situation remains same in future at and after retirement.. retrospective studies shows large cap and hybrid funds have almost never given negative return...
I do feel the same
Thanks for your comment. This is an example of bucketing. We feel 5 years may be too less, our preference would be for 10 years. We are exploring strategies like bucketing as well as dyanmic withdrawal strategies to see if better withdrawals can be targeted. We will be out with our research soon. - Ravi
@@samasthitiadvisors5115 Thanks you for taking time to comment on this. Unless the valuations are too rich, why would there be a 5 year window where the stock market index returns (assume index funds only) would be negative?
@@samasthitiadvisors5115 thank you. doing such research still helps. no matter how accurate they are. so thank you. i am sure you have invested a good amt of time in it. appreciate it.
With this approach of 60% of retirement corpus in debt is insane for the 30 year period.
The corpus needs to be split into 3 buckets. Expense bucket. Contingency fund bucket & Corpus Growth bucket.
Once the first 2 buckets are taken care of, the corpus growth bucket can be 100% equity. Every year the first 2 buckets are replenished from the corpus growth bucket.
This will cut out the equity volatility from the near term & ensures that the long term nature of equity is used. The yearly bucket filling ensures that the asset allocation is taken care of.
All this fancy IIM-A research & still ignores that basic of investment- use long term nature of equity to advantage
Great response and points raised sir. I have a query, in a year or years where the markets fall and equity returns can go negative, how would the first 2 buckets be replenished in those years?
@@rohanp8645 This is a great question. One of the biggest flaws in retirement planning is assuming returns/inflation will be linear. - Ravi
@@rohanp8645 You need to have 30 times of your annual expenses as main corpus. It will never become negative
very insightful. great video! Thanks
Thank you, I am glad you liked the video - Ravi
Really helpful both of you, thank you so much
Thank you, I am glad you liked the video - Ravi
Excellent video. Do link to his research paper too
Lucky are those who are getting pension from govt, much less headache in calculating these things.
Yes, you are right. For those who do not have a defined pension, its a challenge to undertake such computations. Unfortunately, our society is moving from defined benefit (DB) to defined contribution (DC) model of pensions. In DC model, the risk of investing as well as the return from those investments is entirely borne by the investor. - Ravi
There is no mention of bucket strategy to handle the sequence of returns risk. Also the calculator recommends a higher corpus based on withdrawal rate of 2.3 to 2.5%
Yaa I think 2~2.5% is enough that means if no return comes after that then corpus will last for atleast another 40-50 yrs which is enough if someone retires at age 40
But how do uthink money will be kept like in mutual funds or stocks or pms or real estate where ?
@@AnujNeogi-ih2db You ignored inflation
Man thats inflation adjusted
Yes, there is no mention of bucket strategy as we first need a baseline benchmark for withdrawals against which to compare alternative withdrawal strategies like bucketing as well as other dyanmic withdrawal strategies used internationally. The safe withdrawal methodology acts as the baseline, which our research establishes. Now, as planners and investors, we need to see if we can do better. We are exploring strategies like bucketing as well as dyanmic withdrawal strategies to see if better withdrawals can be targeted. We will be out with our research soon. Thanks for wathcing the video and for your comment - Ravi
Excellent talk. Most of us are assuming equity returns to be as they were for the past decade and that is the problem. Have so many of my know acquaintances who invest fully in equity that too mid and small caps. They think debt is a useless asset class.
Yes . This method is not recommended coz there will be on paper loss if they withdraw from equity amidst High Volatility due to small/Midcaps post retirement 👎🏼
& that’s why gold has been taken into consideration as a Hedging 👍🏼
@@Ganeshan724 You are right, a retirement portfolio needs to be guarded against too much volatility.
Thank you, glad you liked the video. Yes, equity returns has been unusually high over the last decade, making debt investments look unattractive. However, we all know markets have their cycles and a typical retirement portfolio will see multiple cycles. Hence the cautious approach. - Ravi
Overall it's a good discussion and relevant points for India is considered and researched. Easy to criticize and give various creative solutions from others experience and yea they can, but a generic research can only draw baselines which looking back say 10-15 years later should still be true at that time. Thanks team, and yes, host did a good job in reminding the points. This kind of host I wish we get in every worthwhile discussions of importance to common man. Zerodha as with everything else sets the standards. Well done!
How to track if we are progressing on the retirement Target
The calcuator doesn't allow retirement age below 55 yrs. What if someone is contemplating early retirement at 50-52?
Go lower on the SWR...maybe 2.5% will work.
Top 7 Hybrid funds (SWP) have given more than 15% returns over the last 10 years. Considering even 12% returns, what is the problem in withdrawing 4% from the Corpus?
Thanks for your comment.
1. 3% withdrawal is in first year, post which withdrawals are inflation linked. So depending on market movements, this withdrawal rate post the first year will oscillate, sometimes it will be higher, sometimes lower.
2. 10 years data is to less to build a model around withdrawals.
Yes Its simple. Your monthly exp is only 50K. Sure all you have to do is save 8.5CR!!! And she just smirks through it . . . . . .
Wondering why 60% debt is allocated to Corpus. It have a less return if we go for it. Ideally 75% Equity and 25% Debt is a much better option with a 5 Year corpus always accessible in Liquid Fund using Bucket strategy.
What happens if you have a bad sequence of return for 5/8 years or longer
@@Jyyoi guess thats where the 5 year corpus or expense parked in a liquid fund would take care of
@@rohanp8645 what happens if it is longer than that 🙂
@@Jyyo Not possible. I don't think Nifty 50 has given negative returns over any 5 year period.
@@keyurpatel1982 once upon a time the Americans, Germans and in recent past Japanese thought so too.
Good Luck
☮️
Keeping extra emergency fund of 2/3 years in bank fd gor situation like market crash,stopping swp and consuming fd,
I think it is better way
What abt SWP from equity Mf portfolio.
Many people keep saying here he is wrong but please note that he is taking into account safe withdrawal accounting for volatility. For this he is considering multiple scenarios. If you consider a runway of 25 years, inflation between 5-8% and current monthly expense by Rs. 1 lakh, one will need a corpus of Rs. 14-27 crore (depending on inflation). I feel his mention of 5% inflation seems too low. We need to consider our basket of goods.
can the 33x rule be applied to early retirement also, if i wish to reitre by 40 will it be viable to have only 33x..
No, 33x rule is for someone who is retiring at 60. For early retirement, like retiring at 40, the number will be much higher. - Ravi
@@samasthitiadvisors5115 thank you sir
all the conclusions arrived is backed by research and must be correct but i don't know how practical it is for a 70 yrs or 75 yrs old to decide from where to withdraw and rebalance the portfolio.... I think the whole planning is bit completed for someone with non-finance background and someone who is retired........ so all this should be molded into some simple strategy which can be managed by anyone.... even at the age of 80 yrs.
The approach that we have recommended is indeed a simple approach as it compresses everything into one single number of the safe withdrawal rate (SWR). I think that we might find this complex because this is a new approach, but as we spend more time in understanding this, it might become the default way in which retirement portfolios are managed. - Ravi
The 4% rule assumes 63 percent equity and rest debt, you talk about opposite, hence higher 33x or 3% per year withdrawal,its not groundbreaking or new just higher allocation of debt from Trinity study. In essence 4% rule still works in India if you stick with 65:35 equity to debt
What is the rate of return that is anticipated from the equity section (60℅)? After all rate of return from investing in small cap will be significantly different from rate of return through investing in large cap.
A 15 year SIP in small cap yielded around 8.5%, an 18 year SIP in large cap index yielded around 9% returns. The returns don't differ much when there is a crash.
We have not assumed a constant rate of return as that would be making the mistake of not taking into account sequence of return risk. Hence, we deploy simulation to look at past 20 years actual return and see how different scenarios will impact a retirement portfolio.
@@rudrachatterjee2614 8.5 % for small caps over 15 uyears ? Which small cap fund are you talking about?
Most orthodox approach without considering current scenario. Only 40% exposure to equity is an obsolete approach. If one needs to beat inflation the exposure to equity has to be more.
As our analysis suggests, which is grounded in historical data, the orthodox approach might very well be the right approach. Larger exposure to equity will introduce a significant risk of volatility. We need to account for this risk. - Ravi
You don't seem to have followed the discussion well or refuse to believe the historical data or think you are super smart to beat the market and time it to perfection.
Can you share assumptions your model? It seems unrealistic.. higher equity lesser safe withdrawal rate?
You can always depend on real estate as a substitute of withdrawal
@samasthitiadvisors5115 at year 1 of my forecasted retirement plan my SWR is 3.16, I am planning an early retirement, rather say do not intend to work for money and hoping my corpus to last for 42 years, my question is how many years should one be in the 3 SWR territory to navigate the duration with safety, if the approach is a die with zero approach? (Long term inflation considered is 7% asset growth rate pre & post retirement is 8%, years to retirement is 10)
what about investment in index , which is comparatively less volatile and gives better return
Index funds are at the end of the day investments in stocks. So they are still volatile. - Ravi
Japan Neikei index was flat for 30yrs!
China in Feb2024 was at same levels as in 2007.
This indexes too aren't sureshot venues
listen am 55 ..dont waste your time.ensure retirment needs from guaranteed ..rest corpus for extra expenses ,inflation etc ..+ mediclaim.. thats it
Its true that equity in a retirement portfolio will increase risk and volatility. No question. But equity does give the portfolio the opportunity to grow over time as well. So how about taking a ‘bucket’ approach to the retirement portfolio? Bucket 1 would be mostly cash to cover needs for say 2-3 years near term. Then a bucket 2 with FDs, bonds, and such like to cover say the next 3-7 or even 3-10 years. No equity in buckets 1 and 2. And then finally a bucket 3 for years 10 and beyond. And this bucket 3 can have 60/40 equity/debt or perhaps higher even. This approach would mean that one has a ‘safe’ period of 10 years with cash and safe instruments. Bucket 3 can be reviewed regularly and either left alone (if market is down) or gains can be moved to buckets 1 or 2 in years when market is up.
When you add all this it seems like you'll get the same ratio 60:40 like he says.
Host is awesum
He is reducing equity by 10% to introduce gold but comparing gold returns with debt and suggesting we can have 3.5 withdrawal if we do that.confused?
Higher the SWR lower the corpus requirement (for the same annual expenses). So a 3.5% SWR corresponds to a retirement corpus of 100/3.5 = 29X of annual expenses, and not 33X without gold.
All data and results are based on actual return earned by diffferent asset classes during the study period. It is what it is. Gold provides a good hedge, and hence betters the withdrawal rates :) - Ravi
When you retire lets say after 30 years, inflation & return data will be so different..
Yes, you are right. We can look at the past as a reference, but the future can still surprise us. - Ravi
Post Retirement investing is complex
Yes indeed, as we also realized while undertaking the research! - Ravi
Move to cheaper or smaller cities after retirement.
This is not a viable concept. I figured out something much better and working on it.
25 X of annual expenses. Sounds good
It is hard to believe thr withdrawal rate of just 3 percent. All the swp calculators suggest that anything around 8 percent withdrawal is completely ok.
Withdrawal rate of 3% is in the first year, post which it is inflation indexed. So the rate of withdrawal in subsequent years could be more or less than 8% depending on many factors. - Ravi
If I want to retire in next 15 years and my annual expense is 10L
My corpus based on that should be
33x 24L
=7.92cr
I think its way too much..
I keep watching such videos and based on this I almost have to double the corpus during retirement.. (usually people come up with 4cr number..)
8cr looks a bit too much for a person spending only 10L
Hi, yes you are right. INR 7.92 cr would be the corpus requirement. Its a large number, but with right planning, you can get to it. Small investments can snowball into large corpus with time. - Ravi
At this rate.. I would never be able to retire! Will need to work from my grave too !
The calculator is dubious! Regardless of the inputs, why is the output that "you will outlive your Retirement corpus"... based on this calculator apparently, even richest people will outlive their corpus
Hello, the retirement calculator shows how one will outlive their retirement corpus if they use the typical approach for retirement computations. The fact that the simulation shows that a retiree is outliving the retirement corpus validates our research. Do read the note accompanying the calculator. Thanks for trying it out. - Ravi
@@samasthitiadvisors5115 i did try it out but then ditched it as well. It's non-intuitive to use and lacks clarity to some extent, compared to other online calculators. I am a PhD in a well-known Business school so my presumption is that the lack of clarity will make it difficult to reach the masses
(also I am well on course to have the retirement amount in 30 years but again, this might never reach the people who need it most simply because it's complicated to grasp)
Totally insane discussion,
Wow how easily You are telling that it is very simple. Don't You have a basic knowledge that the inflation won't stay for 5% for next 30 years.
It frightening. It could be like most of the middle class families can’t reach this number.
Its not too frightening if one can reach 1 crore in the first 15 years, then that 1 crore would reach 8 crore in next 15 years, through mutual fund kind investments with average returns of 14 to 15 percent, where corpus doubles every 5 years. Looks possible?
Which debt is best for investment for my age as on 28 years old
Remaining debt free is best option for you
You can try Multi asset funds. So that fund manager can decide on asset allocation for you according to market conditions, and you don't have to worry about debt funds😊
At 28, you should be looking ONLy at equity. may be 5 to 6 yreas later, you can start thinking about debt.
dont think of debt. its bs
@@saravn02 DO consider that we don't know his risk appetite, tolerance for volatility and time horizon of investment. Debt allocation is the greatest instrument in wealth creation, if one is wise in doing so
Unnecessarily complicated.
what he is saying is 100% Wrong,Over estimates Retirement corpus,3 Cr is sufficient whose monthly expenses 1Lakh at present.
Bullshit unrealistic corpse for 50k expenses 😅
Except his voice nothing is convincing
Maha bakwas. Kaun 50 kamane wala 8 cr bacha sakta he
Disappointing on multiple counts. Extremely conservative/ pessimistic!
Hindi bolo to view ayege
தேவையே இல்ல டா.
Their target audience understands English I guess..
sur wo to wese b aate h
Hogwash in name of IIM research!