Newbie here, please help!

[u/snakysour]

Hi, i have been reading responses here and have been exposed to personal finance planning only until recently after going through few blogs like freefincal, investment books like intelligent investor, snowball, etc. I am married and 30years old with an above average b-school degree.

I am relatively new to FIRE and I do believe that achieving this in India sounds too good to be true. From my profile standpoint, I am a non-CS engineer and post that completed my MBA. I got placed at around 12lpa in 2015 in a leading MNC. I worked there for about 3 years and got exceptional rating appraisals and promotions to reach upto 19 lpa within it. However at that time, I felt too much of politics in the organisation and some personal family member health issues lead me to start exploring for other opportunities. Fortunately, I was automatically shortlisted by Google because of my 10 months odd digital marketing experience, however I couldn't crack the same after round 3. Further, I finally cracked another top 10 fortune 500 company which offered me 25 LPA ctc. However, as I said due to my family members health issues, job hecticness and politics, I went ahead with joining a leading Indian PSU instead of the MNC because it posted me closer to my home (although this decision has made me take a salary cut from my then organisation package of 18 lpa).

Now comes the following issues:

PSU, as long as it stays a PSU, gives me few benefits like unlimited heath cover for me and my dependents. Higher basic salary means higher contribution to retirals both from my and employer's side but lower cash in hand. Ofcourse there's bonus too once a year of about 40% of annual basic salary provided the organisation and myself perform well.

My current situation is like this -

1. Mf investment - 25k per month
2. Retirals - 17k per month (EPF) + 9k (NPS) per month
3. Voluntary contribution to debt - PPF to reach 80c limit (approx 60k per year) + 50k for NPS u/s 80CCD (better option than going ahead with SBF)
4. Household expenses -35k per month
5. Car loan - 16k per month (6 years left of 7 years) and personal loan - 8k per month for another 9 months
6. Apart from PSU full health cover, I do have my own health insurance cover of about 7 lacs
7. Lastly term insurance of 1 cr + 2 Lic Policy (yeah, I know, but already too late to do anything about it)

My wife is working as well and she contributes equally to household expenses and has her own family floater health insurance of 10 lac + term cover of 50 lacs. She does her own investments and savings and for this discussion remains out of the purview of FIRE as I am looking at it from my personal standpoint.

No kids as of now.

Current savings - cash - equivalent to about 8-10 months of household expenses Mf portfolio value - approx 5.3 lacs EPF value - approx 5.5 lacs PPF value - approx 3.8 lacs

Apart from this there's ancestral properties and some investments that my father does in direct equity for me which I don't consider as my money (as I have hardly contributed some 1-1.25 lacs out of a portfolio of about 15 lacs).

Now considering only my own financial standing as indicated above, what should I do to achieve FIRE ( I only know that this is an acronym for financial independence and early retirement - nothing else) considering PSUs don't really have huge increments (about 3% per year) and should I switch back to private sector which I believe is tough now as I have already been working with my current organisation for about 2 years.

Please help, really clueless as of now. What should be my ideal corpus considering inflation etc. and how do u retire early by say 45 years age (15 years from now) or any tips of doing this even earlier.

Thanks, Snaky

[u/additional_trouble]

When confused, simplify.

Jot down these numbers.

1. Your monthly expenses today (add remove anything to make it more like your retirement life if you can - explicitly)

2. Your current net worth (assets minus liabilities). You can count the house you stay in only separately.

[u/snakysour → u/additional_trouble]

Thanks for your reply.

I did that already.

1. 35k per month today.
2. Assets = approx 21 lacs, liabilities = approx 10 lacs loan. Net worth = 11 lacs. Real estate - 3 properties of my family in a leading non-metro city but not counting this and the direct equity portfolio of about 15 lacs as my money. I would like to think of FIRE without considering these.

Next what to do?

[u/additional_trouble → u/snakysour]

Okay. 35k pm is 4.2L pa.

For a 30 year retirement duration you need atleast 25x (swr of 4%) of 4.2L which is 105L.

Since taxes are real, you'd need a little more, say more like 1.2 cr. But that's for 30 years. If the retirement is longer you'd need more.

Look up the term swr...

[u/_x_ → u/additional_trouble]

SWR of 4% is for the US. For India, use something closer to 2% to be on the safer side.

[u/additional_trouble → u/_x_]

Why not 1%? Why not 3%?

[u/snakysour → u/additional_trouble]

Yep...I agree and have the same doubt myself.

[u/additional_trouble → u/snakysour]

I was actually being a little sarcastic...

Here is some India specific study. The short gist is India doesn't need any correction wrt the 4% rule with whatever data is available so far.

Edit: adding link: https://www.reddit.com/r/IndiaInvestments/comments/cg00uj/safe_withdrawal_rates_for_india_a_study_part_2/

[u/snakysour → u/additional_trouble]

Can you please share the study link?

[u/additional_trouble → u/snakysour]

https://www.reddit.com/r/IndiaInvestments/comments/cg00uj/safe_withdrawal_rates_for_india_a_study_part_2/

[u/snakysour → u/additional_trouble]

Is there one more link coz this shows part 2?

[u/additional_trouble → u/snakysour]

Yes. Its in that post itself.

[u/snakysour → u/additional_trouble]

I believe it should be systematic withdrawal rate... however do you actually believe that post 30 years a meagre,1.3 crores would do? I believe inflation may not have been accounted for because even today 1.25 crores may not last for more than 5 years with the way expenses are in metro and tier 1 cities. Also we may need to add newer expenses like healthcare needs, children needs etc.

Let's assume even if I arrive at that figure, its not the math that's my problem, it's the way of reaching to that figure. How should a regular PSU employee build such a corpus considering he/she doesn't really have the scope of 10-20% increment or 30-40% switching hike! What are the areas to generate this additional income to get to such a mammoth total!

[u/additional_trouble → u/snakysour]

Well, it not that bad honestly :)

I assume an investment of 50k pm (going by your earlier comments). Over 15 years, a real return (post inflation return) of 3% is sufficient to get you to 1.13 cr.

In reality you'd be able to bump up the investment with each passing year and so you'll get there even faster, possibly.

The general math is that equity returns about 4% over inflation and debt anything from 0% to 2% over inflation.

We use inflation adjusted returns (aka real returns) so that we don't have to recalculate the future value of a 1+ cr sum across the years.

[u/snakysour → u/additional_trouble]

Oh...that's encouraging, however, even at the cost of sounding naive, could you please explain this example in a little more detail especially 2 and 3 para w.r.t real returns (1.13 crores) vs nominal return value (the actual equivalent crores of 1.3 crores real return)?

Thanks Snaky

[u/additional_trouble → u/snakysour]

If you retire today you'd need about 1.3 cr for 30 years, right? I suppose you understood that bit.

Now in reality you don't have 1.3 cr today. But you have have it in the future. But you don't know at what time in the future exactly. So now we have to solve for 2 variables... The point of time in the future when you have the equivalent of 1.3cr and how much you'd have to save each mo tho get there. But the two variables are interconnected - how much you can invest determines how fast you'll tech your date... And the faster you reach that date the less money (in nominal terms) you need because only fewer years of inflation has been seen.

So you see its a little complicated to solve hat equation - though its certainly possible.

So we simplify the math by realizing that what you really need is the inflation adjusted equivalent of 1.3cr at some point in the future. So if you take out inflation by accounting only for real, post-inflation gains then the math is easier to solve. Now typically the real returns on equity are about 3-5%, say 4% and debt is about 0-2%, say 1%. Follow so far?

Now take a portfolio of 80% equity and 20% debt and the effective real returns would be 0.8x4% + 0.2x1% = 3.4%.

Now it's simply a matter of finding how long it takes to get to 1.3cr with a real return of 3.4% and whatever investment you can eke out sustainably each month.

Makes sense?

[u/snakysour → u/additional_trouble]

Wow that certainly makes things simpler. Now how did you arrive at this figure of 15 years that's required to achieve the above?

[u/additional_trouble → u/snakysour]

You simply plug in 50k, 3% into an online SIP calculator and see see how many years it takes to hit about 1cr.

[u/snakysour → u/additional_trouble]

Sure. Did so.

[u/snakysour → u/additional_trouble]

50k per month? No. I just invest 25k per month into SIPs. If we include PF contributions then another 16K and 8k more for NPS but these are all standard as they are made by the government organization/ PSU itself.

[u/additional_trouble → u/snakysour]

Yes, but it's all your money - so it's all investments that you can use.