I hate thumb rules, and let me repeat that, I hate thumb rules. The thumb looks very different from the other fingers, so what rules apply to it, cannot apply to the other fingers.

However, there are a few rules which work in retirement / for retirement. Let us look at 3 of them:

  1. Start early: This is the zillionth time I am saying this. It is so damn important. Start NOW. The cost of waiting is too damn high, and is not worth waiting. And you should be targeting to save 10-15% of your income if you are between 22-34 years of age. If you are starting at 35, you need to up it to about 20%. Attempting to save anything more than this is great, if you can do it, you will reach your target earlier.
  2. Invest ENOUGH in equity. On a Rs. 25L sustainable ctc if you are doing a Rs. 5000 SIP, you got to realize that it is of no use AT ALL. Make sure that you have enough equity in your portfolio. Well invested, and for real long periods of time. Cannot ignore the importance of time in the process of wealth creation. If this sounds a lot like the earlier point, yes it is. So time was point number one and Equity Asset class is point number 2. For investing in equities you need to fortify your brain and stomach. Do that.
  3. Target to withdraw ONLY, only, only about 5% of your retirement corpus. So if you have accumulated say Rs. 5 crores for retirement, you will be able to withdraw Rs. 25L for your annual expenses. Do you need only Rs. 12 lakhs? great. Invest the balance. Over a 30 year post retirement, DO NOT TAKE A CHANCE.

short post, just as a reminder – which you do not need !! enjoy

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  1. So, on a 25 LPA CTC, what’s the SIP amount per month to be targeted? I know, there’s no standard or correct answer, but want to know your thoughts.
    Is there a % of salary we ought to use?

  2. Can you expand on the last point? Are you saying a 5% withdrawal rate is sustainable in retirement. I always thought 5% is too high.

  3. Re Rule No :3
    5% is the inflation adjusted Safe Withdrawal Rate (30 years) for Indian retirement. Am I interpreting your post correctly?
    What is the asset allocation (Equity/Debt) assumed here ?

  4. Rule No:3

    5% withdrawal rate is way too high. You will go bust for any reasonable period in retirement if you pull out inflation adjusted withdrawals at 5%

    The Safe Withdrawal Rate (SWR) for high inflation conditions like in India is more like 2% to 3%

  5. is the example not clear? If you have 5 cr corpus u can withdraw 25L..so mr burntout will u explain what is “5% swr INFLATION ADJUSTED” ? i DID NOT understand

  6. 5% Inflation Adjusted SWR means
    Year Withdrawal
    Year 1 – 25 Lakhs ( 5 Crores * 5%)
    Year 2 – 25 * (1+ Year 1 Inflation %)
    Year 3 – Year 2 Withdrawal * (1+ Year 2 Inflation %)
    Year 4 – Year 3 Withdrawal * (1+ Year 3 Inflation %)
    Year 30 – Year 29 Withdrawal * (1+ Year 29 Inflation %)

  7. Example is clear to me. My question to subra was, does he think a withdrawal rate of 5% is high? Most western world generally use a 4% thumb rule. I thought the high inflation in India will bring that down to 2%-3%. Can you please share your thoughts.May be i did not understand it correctly.

  8. Assuming the Rs.5 crore corpus is in equity, it can definitely sustain 5% withdrawals or even more. The return from equity over the retirement period should be significantly higher than 5% CAGR.

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