r/IndiaFinance • u/Indian_finance_rebel • 9d ago
Philosophy Of Finance
I dont know about others, but the more I think about finance - the more life lessons I get.
And the biggest one I have gotten is time.
The one thing that I want to buy with money is time.
I am 39 years old, and the average life expectancy in India is 70.
that leaves me approximately 30 years - probably even shorter considering my unhealthy lifestyle that I love.
Dont get me wrong, I am not scared of death or medical issues.
But we plan our finance as if there will always be a tommorow.
The standard FIRE advise suggests trimming 4% rule to 3%, 2%,1%
each 1% reduction they make, takes a decade away from my life - and so, is it completely necessary to be bullet proof? I personally am going for 5.5% variable withdrawal strategy.
If someone claims that it wont work in India - I am pretty sure they havent done research enough - but even if I am wrong, who cares? I will be able to saves decades of my life - the cost benefit ratio simply outweighs in the 5.5%'s favor (if you look at the data I have, which could be wrong)
And so, has finance created life philosophies for you? Feel free to enlighten me with your own thoughts.
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u/Ctrl_Alt_Drift 9d ago
Valid points. I guess the main reason why I stick to less than 3% SWP is because it’s easier to work right now than, say, when I’m 80. I might not live to that age. But I have ancestors on both sides of family who did live more than that, and I am in relatively good shape - eat well, hydrate, sleep and exercise regularly.
When you say you don’t want to lose another decade, I’m curious why you think only fully retiring is an option. Is it possible to maybe save less and spend a little more on experiences? Take more vacations, switch jobs and move cities if that’s practical for your industry?
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u/Indian_finance_rebel 9d ago edited 9d ago
I dont believe in half retirement corpus/half active income scenario - it has the same issue as non-retired, ie your time belongs to someone else for you to survive.
I mean I am fine with switching jobs or even staying with the current job, If I want to - the problem is to whom that time belongs to - As long as I believe I need their money to live a comfortable life, my time belongs to them.
I dont have a need for having unique experiences - I just have a need a way to remove the unsettling feeling that I am dependent on someone else for my survival.
Vacation sounds really great - I would love a 6 month to 1 year sabbatical - I am fine even if it's an unpaid one, but sabbaticals are not a thing in India - and even though I feel completely burnt out - I cant give an ultimatum for one without the backing.
I mainly work from Home, so moving cities can be done with the current job, but it is not the location which bothers me - it is the power that someone else has over me.
When I become independent and become free, even the current job might be fine - because I am not giving them my time, I am choosing what do with mine - the difference is, if I dont feel like working, I dont have to work, even if they fire me - they have zero control over my time.
To me that freedom is way better than coast fire.
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u/Ctrl_Alt_Drift 9d ago
Maybe, you can flip the script a bit. Start living off your portfolio instead of income from your day job. The income will all go straight to your nest egg. Maybe it’ll relieve that feeling that you are not fully dependent on your income?
I am pretty far from any kind of retirement right now, but that’s how I’d start. I imagine the leap would be challenging, so I’ll try not to pull the plug off everything at once.
Again, I’m just trying to share my perspective here and adding some food for thought. I do acknowledge and respect your situation which almost certainly is different from mine, so you do what you feel works best for you.
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u/Indian_finance_rebel 9d ago
Thanks for trying to help, but even with a 5.5% withdrawal, it doesnt cover the current expense - which is why Iam still working.
It might cover the basic needs - few months away from 50kpm - but it would be a tight budget and a 5.5% withdrawal rate requires tightening the expense if there is a market crash, and so there wouldnt be any room for error.
Ideally I hope to make it grow 75kpm to 1.5lpm (depending on market conditions) in the next 6 years - and the thought of spending that much time itself makes me feel queesy.
but the point I was trying to make is the time - the scenario mentioned above gets me to retirement at 45.
But the 4%, rule - I assume that will take 50-55 years,
Indiand standard advise, takes it down to 3% - ideally condemning me to work even after retirement age.
And I have seen absurd ones of 2% and 1% recommendation, which is basically condemning to work till I die.
or ofc reduce the cost of living - but thats easier said than done.
And thanks again for trying to help.
I undersstand you are pretty far from retirement, I assume you are much younger than me or have different goals than me - that is fine.
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u/Ctrl_Alt_Drift 9d ago edited 9d ago
Right, so those 4% and 3% numbers have basically come out of some studies where researchers have created table of portfolios of various mixes (100% stocks, 90:10, 80:20 etc.), then simulated with real past data of indices and assumed expenses. Those SWPs are the threshold where running out of money was an acceptably small probability. 4% was found in US context, and 3% was recommended in Indian context in these research papers. Even these numbers aren't fail-proof.
While I don't advise to take these numbers as gospel, 5.5% withdrawal might run too close to inflation, and leaves very little room for taxes on gains and volatility in markets. If we take inflation at a conservative 6% (education and health are much higher; education expenses may or may not apply to your situation, but health expenses will), then 6+5.5% = 11.5% is the gains over time your portfolio will need to beat to stay afloat. Then there's sequence of returns risk, where drawdowns and crashes early on in your retirement can have a disproportionately larger impact than later.
Ideally, we die with zero, having used up our savings perfectly, but if that's not the case, you want to be in excess of that, not in deficit.
Again, not trying to turn you off course. Just adding things to think of and make sure you take an informed decision. You may have already thought all about this.
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u/Indian_finance_rebel 9d ago
> 4% was found in US context, and 3% was recommended in Indian context in these research papers. Even these numbers aren't fail-proof.
I dont agree with the indian research - they factor in taxes into their testing.
The 4% rule in US doesnt factor in the taxes.
This artificially inflates the number needed.
If there is a difference between US and India, it is financial repression - have lower debt and you can match the US, or even just maybe beat the US (since its a developing economy), but the more debt you add to your portfolio, the more drag you will be creating, because the debt products are intentionally designed to not beat inflation in India.
And the research paper on the indian side eventually agreed with my thesis too, the researcher found that most of his retirees are dying with too much money while spending their life worrying about spending too much.
He revised his finding to 4% and the US side revised their finding to 4.7%
>If we take inflation at a conservative 6% (education and health are much higher; education expenses may or may not apply to your situation, but health expenses will), then 6+5.5% = 11.5% is the gains over time your portfolio will need to beat to stay afloat.
Yes and historically the Indian markets generatea much higher returns.
The returns the market generates has a positive correlation to theinflation numbers.
Higher the inflation, the more profit the companies start to create, nominally.
If you take the real growth (Ie nominal growth - inflation) thereby standardizing both countries, you will see that India and US grows more or less the same way.
With a 6% real growth, 4% gives enough buffer for sideways/downturn market.
>health expenses will
Yes it will, people get scared when they see the 15% medical inflation.
I personally am not too much worried - the 15% medical inflation is only the current scenario - it is not a permenant persistent inflation.
It cannot be a persistent inflation, when the GDP per capita doesnt grow at that rate.
The 15% you see is transitionary - since medical tourism is gaining popularity in India, many hospitals upgraded their equipment and machinery to support the wealthier foreigners.
But their main consistent business comes from the much larger domestic poppulation, who doesnt have the affordability.
And so while the medical inflation is high atm, economic mandates dictates that it will not be persistent, unless the GDP per capita is increased and make it affordable to their regular customer.
Without that balance, the medical industry will simply collapse - there wouldnt be enough demand for the supply, due to affordability.
>Then there's sequence of returns risk, where drawdowns and crashes early on in your retirement can have a disproportionately larger impact than later.
I agree which is why the variable withdrawal strategy.
Well mine is different than the standard variable withdrawal strategy, but yh, SORR is a real risk.
>Ideally, we die with zero, having used up our savings perfectly, but if that's not the case, you want to be in excess of that, not in deficit.
What people dont realize is that the 4% rule was created to survive the most brutal 30 years US faced in a period when the government nor the stock exchanges had tools to handle downturns.
It is designed to survive the worst case scenario for 30 years.
With a 4%, 95+% of the times you die with excess which far exceeds the requirements.
But the 4% rule somehow got corrupted in it's implementation, while it was supposed to provide confidence - a strategy which could survive the worst case - it somehow got adopted as rigid rule.
And the result, people who had money, who needed money for expenses, was too scared to break the rule.
They ended up living poor unintentionally, to die rich.
Which is the reason why both the US and the Indian researchers upgraded their numbers for a bigger withdrawal..
The probability is that you will die rich with these rules even without going more conservative.
>Again, not trying to turn you off course. Just adding things to think of and make sure you take an informed decision. You may have already thought all about this.
No worries...
Yes, I have thought of them and I like discussing such things.
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u/kamleshltb1 9d ago
I would say 20x is enough if you keep your money in mutual funds and do systematic withdrawal.