At what age should one retire? How much money should a person have for retirement? Is retirement an age or a sum of money? Are there any great activities that I love to do which is PULLING me towards retirement or is the calendar PUSHING me towards retirement?
These are questions that an individual has to answer for himself or herself. However there is another concept called a ‘permanently funding portfolio‘. It is a simple and easy to understand concept. Let us say there is an individual who has an annual expense of Rs. 300,000 and he is now retired.
Assume he has a portfolio of Rs. 30 million (Rs. 3 crores) – and this is split between real estate, equities and bank / other fixed deposits, etc.
His income is as follows:
Rent 400,000 Interest 700,000 Dividend 400,000
To meet his total expense of Rs. 300,000 he has created an asset base which gives him Rs. 15 lakhs. Out of this amount, it is fairly obvious that Rs. 12 lakhs is getting reinvested in assets like bank deposits. If you can create such a portfolio – and 3 income sources – where each one has a cash flow level greater than your requirement, and adjusting for inflation, you are really retired (and wealth, dammit!).
A small corpus and constant worries about random choices in life is not a ‘comfortable’ retirement.
Like a friend said ‘as long as I know that whenever I update my passbook I see 7 digits without having to worry about the last paisa being utilized well, I know I am happily retired’. True.
Creating adequate cash flows by the age of 40 is TOUGH. Especially for those who have to create all the capital, spend decently on oneself, and retire well. Of course if your plans are to buy a 4500 sft. beach house, then u need money accordingly. Even in Chennai this house will cost Rs. 5 crores…so welcome to the world of retirees…:-)
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