I have been making retirement calculators for 14 years, which are some lessons I learned. My first calculator was made around 2010 or so. I shared it with PV Subramanyam (Subra of subramoney.com) for feedback.
Like everyone else using a retirement calculator for the first time, I, too, was scared to see the corpus I needed and the amount I had to invest (which was at least twice the amount I was investing then. Subra said the assumptions were fine, and the results were reasonable. So, I realised I had to invest as much as possible for retirement.
Over the years, the rate at which my investment increased each year was higher than their annualized market return, resulting in financial freedom. See 15 years of mutual fund investing: My Journey and lessons learned.
After a few years, I co-authored You Can Be Rich Too With Goal-based Investing with Subra, published by CNBC TV-18. Several of my calculators were part of the book, then made available for free to everyone, and eventually found their way to the SEBI Investor Education Website.
During this journey, my approach to retirement has changed considerably due to age and circumstances that have taught me not to take our lives for granted. First, I assumed we could take the retirement corpus, invest it “somewhere” with a return above inflation and draw an income from it each year. Then, I realised the importance of segmenting the corpus into buckets and how to manage them.
Then I grappled with “how to change asset allocation before and after retirement?” “How do you fix the asset allocation for early and normal retirement?” “how do I distinguish a retiree who can take on market risk after retirement from a retiree who has to buy an annuity (pension) plan?” “how do we develop a robust bucket strategy to protect early and normal retirees from corpus erosion?”. These questions gave birth to the robo-advisor tool.
From saying “pension is not for me”, I matured into “pension is necessary but only one component of the retirement portfolio”: Creating the “ideal” retirement plan with income flooring!
Then, I understood annuity laddering is an even more effective way of ensuring the corpus outlives us. Use this annuity ladder calculator to plan for retirement with multiple pension streams.
I then focused on building the ideal retirement portfolio. With the technical aspects reasonably in space, it is time to worry about other factors.
It is not enough if we build ourselves a large retirement corpus. We need to build relationships – social capital, if you like a fancy word. How we treat our spouse, parents, children, spouses(!), and relatives all our lives will determine how they treat us as we age. See: There is more to retirement planning than building a large corpus!
I am fairly confident that life has much more to teach me about the nuances of retirement planning.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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