How to Retire Early in India

I have seen several articles talking about a relatively recent trend of people planning to retire early in India.  In our generation today, this could be fueled by rising incomes/salaries, and the increased load that most of us face in the work environment.  So while in my parents generation, the objective was to keep working as long as possible to sustain ones family (usually extending well into their 60s), in todays generation, people are actively considering retiring in their 50s.  The popularity of VSPs (Voluntary Separation Programs) offered by companies, wherein employees choose to take an early retirement package, and leave the active work force voluntarily, is a clear indication of this growing trend. 

However, the one thing that I do not see in all of these early retirement discussions, is real life examples of people who have achieved their early retirement dreams.  I notice a lot of free advice easily available on the internet covering the basics of savings, investments, compounding, LBYM, etc,  but no real evidence of people successfully applying these concepts and realising their early retirement goals.  I also notice that the folks dishing out this advice, are not the ones who have actually achieved early retirement themselves.  So I really wonder how all of these so called financial planners and investment gurus, can be believed if they themselves have not walked the journey towards early retirement. 

My objective on this blog, is to document my own attempt at early retirement, step-by-step, backed up with my own data, lifestyle choices, investment decisions etc.  Based on my success or failures going forward, readers can take valuable lessons to apply to their own financial planning.  Either way, you as a reader cant lose! You can apply my successes to your situation, and steer clear of my failures to increase the probability of your hitting your early retirement goals.  Good luck to us all!

Early Retirement Killer : Inflation

The single biggest obstacle I foresee to any plans for early retirement is inflation.  Yes, I believe this is a bigger challenge than even accumulating a large enough corpus in the first place to enable retiring early.  India continues to reel under the pressure of rampant inflation, ranging from 8% to 10% in recent times.  The inflation rate is not the same across the various components of my expenses.  In particular there are three areas that seem to have persistently high levels of inflation that show no signs of letting up.

Health care:  The cost of medical care, hospitalization, routine doctors visits, and medicines, continues to go up at what feels like an ever quickening pace.  Health care premiums also continue to shoot up at the same pace, as insurance companies have to raise rates to remain viable. 

Education:  Learning, which should ideally be accessible to every single person, also seems to be becoming more expensive everyday.  Tuition fees from nursery and day-care, to higher education professional degrees are becoming prohibitively expensive. 

Real Estate:  In India real estate has always been expensive, but in recent times, has seen a phenomenal increase in per sqft rates.  Everyone wants to own a piece of real estate, and the increased demand is resulting in continually increasing real estate prices. 

The key challenge I see going forward, is that I will definitely need access to health care and education (for my kids) and potentially also buy real estate (either for my self, or as an investment for rental returns)  But due to steep inflation rates in these areas, (and certainly my salary is not increasing at the same pace) I am getting priced out of the market.  In other words, as time goes by, I will be able to afford less and less, in the health-care, education and real estate space. 

Do you feel the same way? and do you have any suggestions on how to deal with this?

3 yrs later: I finally understand the housing crisis

The “Return to the Giant Pool of Money” radio show from This American Life was really interesting and insightful. I am a little embarrassed to have to admit that I never really understood the “housing crisis” completely. I knew big banks and greedy investors were at fault and that they were giving people bad loans, but I had no idea how complex the whole system had gotten and how many players were actually involved. This radio show definitely cleared a lot of things up for me!

Two things that really suck out to me (that I didn’t know before):

1. The Wall Street people were looking at BAD DATA. No wonder this practice of giving NINAs, creating CDOs, etc., went on for so long. The data was telling them it was a good idea. This was a triumph of data over common sense. 
2. No one was looking at the big picture and thinking about the long term effects to the economy. There were lots of players in the game, from mortgage brokers, to banks, to investors and no one took responsibility, because everyone thought it was not their problem. 
3. These players were earning A LOT of money to make this system work. A ridiculous amount of money on commissions. These high commissions and high ROIs definitely propelled the problem and encouraged the loosening of the rules.

The show included the story of two people who started at the complete opposite ends of the spectrum and ended up in similar situations: Richard Campbell, the Marine facing foreclosure, and Glen Pizzolorusso, the sales manager making a lot of money selling bad loans/mortgages (and ending up losing everything).

I liked how they started with Glen and his lifestyle before the housing crisis and then transitioned to Richard and the beginning of the crisis and finally, back to Glen and the outcome of the crisis. Through interjecting these personal stories throughout the show in between the technical talk, it was really easy to understand how the mix of personal behavior, bad banking products, and loss of oversight lead to such a severe economic downturn.

I realize now that from the outside it’s very easy to point fingers and blame all the people who made lots of money from taking advantage of low-income individuals and families. But, really, we need to look at the whole financial system and the governmental laws put in place to support these risky actions if we really want to change things.

Go ahead, listen to it! "Return to the Giant Pool of Money"

Tracking Savings for Early Retirement

My previous post covered my aggressive intent to save 85% of our monthly take home pay for investment purposes.  The key of course is to have the discipline to maintain this aggressive goal and actively track it month by month.  To have any chance of success here, we figured we needed an easy and automated method to implement this, so we are forced into following this guideline for savings.  So our proposal is: as soon as both my wife and I get our monthly salaries in our salary accounts, we will move out 85% of that months' income into investments (through SIPs), or EMIs (for our home loan) or into our secondary bank account.  All monthly expenses will continue to be routed through our respective salary accounts, in the form of utility bill payments, monthly credit card payments, and cash withdrawals for day-to-day expenses.  Let me know what you think of this approach and if you have used something similar before.  We will kick-off with this method starting November 2011. 

Early Retirement : How much to save?

The key determinant of success to achieve your early retirement goals is your savings rate while you are working.  The higher the percentage of savings, the better chance you have of meeting your early retirement goal.  Now of course, the level of savings you can achieve is also dependent on your monthly income levels.  At the start of your career, when your monthly income levels are low, it will be very difficult to achieve a significant savings percentage.  Since you still have to meet your basic expenses for food, housing, clothes etc (the basic essentials) it will be difficult to increase your savings percentage.  However, as your career advances, and your monthly income levels go up, you should be able to start increasing your savings percentage, as typically your monthly basic expenses will not increase much after a certain level.  Particularly in the Indian context, it should be possible to save a very large percentage of your take home salary, if you stick with the principles of LBYM and do not unnecessarily extend your lifestyle. 

I always like to take aggressive goals when it comes to enabling my early retirement.  So far starters I am going to target a 85% savings rate on my monthly income.  This might sound like a huge portion of my monthly earnings, but the objective here is to be as aggressive as possible and find ways to reduce my monthly expenses to enable this savings target.  Just to be clear about my accounting method, here are a few assumptions I will make. 

1. The 85% savings target applies to both my and my wife's monthly take home income.  Any yearly bonuses etc will be additional savings and not accounted for in the 85%

2. All investments in stocks, MFs, real estate EMIs, insurance premiums, are considered as savings for the purposes of this exercise.

3. All expenses in the form of monthly food, entertainment, vacation spending, intermittent medical expenses, utility payments etc are NOT savings and will need to be accommodated in the remaining monthly 15%

Now that I have written this, it makes me wonder if I can achieve this level of aggressive savings, and importantly is there a way for me to track that I am really meeting these savings goals.  My next post will cover how I intend to measure my savings rate, to check how I am doing when compared to the target of 85%

Greece is the Problem? How Dumb Do They Think We Are?

There has been a tremendous amount of nervousness in public sentiment about the state of the economy.  Some of it is certainly legitimate, with the S&P 500 down double digits in the 3rd quarter alone.  As I started to write writing this in early October, much talk over the summer about the market tumble centered around the European debt crisis as being a primary factor.  Then last Thursday's local paper proclaimed "U.S. stocks surge after course of action is presented to strengthen Europe's banks and lower Greece's debt" following the S&P's 8% gain over the trailing week and I couldn't put off injecting some intelligent thought into this discussion.

While it is factually true that Europe has a debt problem, how can anyone give legitimate credence to that problem 'causing' the stock market decline? Let's look at the facts - last year between April and July the market plummeted over 15% because of the threat of Greece defaulting on their debt.  So far, so good, right?

Then, for the nine months between July 2010 and April 2011, the market went up 33%. 

What happened to Greece and the Euro debt concerns during those nine months?   Were they fixed?

Do the talking head really expect us to believe that the Greek / European banking problems signaled impending doom for three months in 2010 (causing the markets to drop sharply), then became magically cured for nine months (causing the stock market to soar majestically), and then become a sign of the apocalypse once again earlier this year - and now that there's a plan in proposed to fix them, markets should rise again?

If it sounds silly when reading the above paragraph out loud, forgive me for for interrupting the hysteria with facts. 

I cannot predict what the short-term future holds with regard to European banks, Grecian debt or stock market returns (and neither can anyone else - at least I don't pretend to!) But it seems far more likely to me that the current death-of-equities is, as usual, caused by media-driven fear as opposed to real economic disaster.

a little update on last year's retirement obsession

Almost a year ago now, I wrote a couple blog posts on retirement, because for some reason I was a little obsessed with it. Well I'm not that excited about it anymore.

Your retirement is FRAGILE! 

I did a lot of research and invested about $1750...now I have $1535, which is not that bad since we had a major downturn in the stock market about two months ago. But, still! I'm down $200...when I wanted to be making money. This really makes me question the whole system. I can't believe people rely on the this type of income to fund their retirement.  It seems absolutely crazy and risky.  Yet, it's the norm.

When I saw my account decrease I was sad, but I wasn't worried.  My retirement is many, many years away. This account is a good start, but if I loose most of my money I can always start from scratch again.  But, what about those individuals who are in their 50s. They only have a couple more years until they will need that money to live off of.  I cannot imagine what they are feeling watching the stock market crash the way it did this summer.

There's got to be a better way to save for retirement!

Social Security barely covers living expenses and it's complicated.  I tried calculating how much money I would get on their wesbite (http://www.ssa.gov/retire2/) and didn't get very far.

I say we bring pensions back for everybody! Why should government bureaucrats & public service people be the only ones who get them?