The 25x thumbrule is based on the Trinity Study, which indicated that a portfolio of 50% stocks (the S&P500 index) and 50% bonds would last at least 30 years if the person withdrew 4% of it in year 1 and then each year increased that amount to account for inflation. Do note that this is USA centric and based on an assumed retriement duration of 30 years. We simply dont have enough data to conclusively back test this for Indian investors.
For someone who is retiring early, the retirement duration will be much longer. You have also assumed a real return of 4% (Portfolio return - Inflation). It is commonly known that India underreports inflation data. Even if the numbers were true, specific expense items like education and healthcare typically see a much higher inflation. So a 4% real return may not be very likely.
Secondly, the x in 25x is your annual expenses at the time of retirement. But some exceptions aside, everyone desires relatively higher comfort as they get older. I may be able to backpack and live in hostels at 35, but may not be as enthusiastic about that proposal at 50. I may not have kids today, but will also need to bring them along to said resort in 2035. So we should assume that our annual expenses will also grow - and not just on account of retail inflation but also on account of lifestyle inflation.
Going forward, and assuming one has to pay for kids' education etc, a 25x corpus may not be enough. I am a firm believer in the 40x corpus in cases where you foresee no gainful employment post retirment and plan to live off your investments. That said, to each their own. I am a stranger ranting on an internet forum. This is clearly not financial advice.
Why is retirement a milestone in your life? Is it some point at which you will not do any work you have done in the past and focus only on hobbies, charity, etc? The concept of 'retirement' is ingrained in our society as the only other alternative to slaving your life away. It's made to seem like there is only black and white, working in a job/law firm or retirement. Why are we so wedded to these notions, that actually focus attention on how your employer would like you to think of your life - either slaving or doing nothing at all (retirement). They want you to think of your life in this black and white, which then makes it painfully apparent to you how much money you need to pull off retirement, which forces you to work even harder in the hopes of getting there reasonably early, which is all great for the employer because they're only thinking of the multiples they'll make on the amount you need for your retirement objectives. The cycle goes on. Your employer will suck an entire chunk of 10-15 years, the best years of your life, if they you let them dangle that carrot of a retirement in front of you. It's easy to look at higher PQE pay and just console yourself it's just a few years more. Time will slip away from your hands like fine sand in the desert.
I just want to take a moment here to say that all of you who are contemplating how many years to 'complete freedom' and other stuff like that - life isn't black and white. Retirement isn't a promised land where everything in life is rosy and great. In between you have 15-20 years (optimistically) in which a majority of major life milestones will lie - love, death and self-development. You can't reverse what happens in those 15-20 years after you 'retire'. If you consider your life as a WIP project, do you want to write only 1 chapter (work) out of 10?
If you are (a) young, (b) aren't in danger of being out on the streets (c) and think you have marketable skills even if you don't know how yet, spend your available time and energy into figuring things out. Employment is a drug to dull your instincts. It's a bit like Huxley's Brave New World. Identifying the deficiencies of your mental constructs, which are primarily peer-ingrained, is the first step.
A0 - zero/negative to 5L A1 - zero / negative to 10L A2 - zero to 20L A3 - 5L to 35L SA1 - 10L to 60L SA2 - 10L to 80L PA1 - 20L to 120L PA2 - 30L to 150L PA3/ Counsel - 50L to 170L AP1 - 70L to 200L AP2 - 70L to 250L AP3 - 100L to 280L AP4 - 100L to 350L EP - 150L to 500L+ EP for > 5 years - 20 - 50 cr
For Blr discount these figures by 5-10% For tier 2 firms discount by 10-20% For tier 3 firms and below discount by 20-40%
For US LLM subtract 50-85L + year not worked For UK LLM subtract 25-30L + year not worked For EU / Asia LLM subtract 15-20L + year not worked
Before 2010 batch who invested more than 50% in real estate: add zero Before 2010 who invested more than 50% in equities: add 20-25% of overall figure Before 2010 who didn’t invest at all / had EMIs to pay: subtract 20-25% of overall figure
My first rant on LI. (Discussion on money 🤑🤑)
I have been working for 10 years in tier one firms and I have only 30L in savings. Not proud of where I spent it all. In a way, don't regret it either. 20s was when I could have had most fun with money, and I did. I have zero debt though- no housing loan, no car loan. Even now, I am not inclined to save because I don't have an end goal. There are months I still live paycheck to paycheck (cos that 30l is not exactly liquid).
I know that as a professional, I can quit the law firm life anytime and still earn a living. May be my standard of living will drop. That's fine; I had hit that rock bottom in law school anyway, with zero pocket money to spend on discretionary stuff.
If ever I get rich, I will probably give it all away in any case. Right now I'm spending it all away, which has also the same effect, in a manner of speaking.
Savings is overrated. Live the life you want, without hurting anyone. Obviously, I'm going to look stupid in my 60s, when everyone else happily retires and I will still be struggling to make my ends meet.
For someone who is retiring early, the retirement duration will be much longer. You have also assumed a real return of 4% (Portfolio return - Inflation). It is commonly known that India underreports inflation data. Even if the numbers were true, specific expense items like education and healthcare typically see a much higher inflation. So a 4% real return may not be very likely.
Secondly, the x in 25x is your annual expenses at the time of retirement. But some exceptions aside, everyone desires relatively higher comfort as they get older. I may be able to backpack and live in hostels at 35, but may not be as enthusiastic about that proposal at 50. I may not have kids today, but will also need to bring them along to said resort in 2035. So we should assume that our annual expenses will also grow - and not just on account of retail inflation but also on account of lifestyle inflation.
Going forward, and assuming one has to pay for kids' education etc, a 25x corpus may not be enough. I am a firm believer in the 40x corpus in cases where you foresee no gainful employment post retirment and plan to live off your investments. That said, to each their own. I am a stranger ranting on an internet forum. This is clearly not financial advice.
I just want to take a moment here to say that all of you who are contemplating how many years to 'complete freedom' and other stuff like that - life isn't black and white. Retirement isn't a promised land where everything in life is rosy and great. In between you have 15-20 years (optimistically) in which a majority of major life milestones will lie - love, death and self-development. You can't reverse what happens in those 15-20 years after you 'retire'. If you consider your life as a WIP project, do you want to write only 1 chapter (work) out of 10?
If you are (a) young, (b) aren't in danger of being out on the streets (c) and think you have marketable skills even if you don't know how yet, spend your available time and energy into figuring things out. Employment is a drug to dull your instincts. It's a bit like Huxley's Brave New World. Identifying the deficiencies of your mental constructs, which are primarily peer-ingrained, is the first step.
A1 - zero / negative to 10L
A2 - zero to 20L
A3 - 5L to 35L
SA1 - 10L to 60L
SA2 - 10L to 80L
PA1 - 20L to 120L
PA2 - 30L to 150L
PA3/ Counsel - 50L to 170L
AP1 - 70L to 200L
AP2 - 70L to 250L
AP3 - 100L to 280L
AP4 - 100L to 350L
EP - 150L to 500L+
EP for > 5 years - 20 - 50 cr
For Blr discount these figures by 5-10%
For tier 2 firms discount by 10-20%
For tier 3 firms and below discount by 20-40%
For US LLM subtract 50-85L + year not worked
For UK LLM subtract 25-30L + year not worked
For EU / Asia LLM subtract 15-20L + year not worked
Before 2010 batch who invested more than 50% in real estate: add zero
Before 2010 who invested more than 50% in equities: add 20-25% of overall figure
Before 2010 who didn’t invest at all / had EMIs to pay: subtract 20-25% of overall figure
Equity MF: 54.8L
Savings Ac: 20L
Debt MF: 7.2L
Stocks: 6.5L
SGB: 3.5L
Misc: 1.5L
Feedback on asset allocation welcome.
I have been working for 10 years in tier one firms and I have only 30L in savings. Not proud of where I spent it all. In a way, don't regret it either. 20s was when I could have had most fun with money, and I did. I have zero debt though- no housing loan, no car loan. Even now, I am not inclined to save because I don't have an end goal. There are months I still live paycheck to paycheck (cos that 30l is not exactly liquid).
I know that as a professional, I can quit the law firm life anytime and still earn a living. May be my standard of living will drop. That's fine; I had hit that rock bottom in law school anyway, with zero pocket money to spend on discretionary stuff.
If ever I get rich, I will probably give it all away in any case. Right now I'm spending it all away, which has also the same effect, in a manner of speaking.
Savings is overrated. Live the life you want, without hurting anyone. Obviously, I'm going to look stupid in my 60s, when everyone else happily retires and I will still be struggling to make my ends meet.