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Old 01-30-2012, 08:57 PM   #21
Recycles dryer sheets
Join Date: Dec 2009
Location: Hyderabad
Posts: 75
Thanks for your input Lsbcal.
- Currently we do have 200K exposure to US Market (100+K in 401K PIMCO, VTSMX and some stuff , 70-80K in Megacorp stock and some in Orange CD) Hadn't thought about continuing post retirement bcaz US inflation and returns are quite benign compared to India but if Indian inflation is high probably Rupee-$ rate will change so a good diversification strategy for sure.
- Not sure about Firecalc since inflation and return data is different. No strong preference to keep wealth in India but we gotto spend iin Indian currency and deall with Indian inflation, just don't know the best way to tackle it.

Once again amazing post Khufu and its not even that -ve


Well, you fooled me--you write like an American. At least we can probably agree that no serious person would read Otar's book only once.
-----I spent 10 adult years in US so yes my sensibilities are probably quite American.

Let me start by pointing out the obvious: although you do not face a forced repatriation risk, your husband apparently does. So, the shoe is on the other foot, but it's the same shoe. You might think about term life insurance on yourself to protect your husband.
-----Do not understand this point since I'm a Home-maker so I do not bring any money in so how will Life Insurance help.PLEASE CLARIFY

As I see it, your job is mostly risk management.
----Totally agree if I manage risk properly I'm successful.

So then I am trying to think what I would do if I were in your shoes. The first step is to state the problem. In your case the problem comes down to inflation. If it were not for inflation or IF your estimate of your personal inflation is reliable (about which I have some doubts), then you would simply put all your money into RBI bonds, keep your costs down, and live forever on 3% or 4% real rate of return. In that case you would not have to accept any equity risk at all, a very attractive prospect for you as risk manager.
-------Yes I keep getting inclined towards this option.

But that's not likely to be the case and inflation is your enemy. So, then I would review all the possible approaches to solving the risk of high inflation. Americans are not the best source of such ideas because our inflation has been benign for a generation. The well-off Indians whom you know and who are available on the internet would be a better source. You want to become an expert on inflation strategies and you want to read the economists who are the authorities. Let me make some suggestions drawing on what I remember from the 70's, although I was too young then to have to deal with it very much.
---------Unfortunately ER is not a common concept in India, Equities are not favoured class of investment, anecdotally I see people relying on Income, business, real estate and Gold etc. as a hedge against inflation. I'm trying but so far I have found this forum to be best source of knowledge on ER. I have been reading books by Bernstien, Otar, Lucia, Bogle .. I mean most of the standard reading list.

Our inflation at the time represented a transfer of wealth from the investor class (the group you would like to join) to the job-holding, house-owning middle class (the group you want to quit.) Houses, salaries, and SS benefits kept pace with or exceeded inflation, but Treasuries paid a negative real rate of return. Some of that wealth was later transferred back when the real (though not the nominal) price of houses reverted to the mean. Although high inflation is a big problem it is not always ruinous. The well-off in such environments often manage to maintain their positions by taking the right steps. Here are some steps I suggest you investigate, even if you don't find them appealing initially:

1. Keep the husband in harness. His labor income is the best financial resource you currently have against inflation. Make sure that he manages his health with exercise, diet, etc. Makes a huge difference.
-----I know...Job income, fixed rate mortgage are the best things just that they are not in sync with what we want to do.

2. While you are eager to share your freedom with him consider the alternative: sharing his misery, i.e. re-entering the workforce at some point yourself so that you get those inflation adjustments. Not what you want to hear, I know. But if you also had income perhaps he could take a lower stress job himself. I worked in IT in New York and somewhat to my own surprise was actually able to step down to a staff position from management for the last 7 years of my career. I was subsequently able to achieve measurable improvements in my health.
-----I considered that very seriously but Risk reward ratio is not worth it. Due to gap in work history when u net out the expenses I could possibly contribute not more than 10-15K to savings and this when compared to my support to my DHs gruelling sched (He gets meals served on table, does not have to worry about finances, household management, kids schedule, social stuff .. nothing) and contribution to kids education etc. doesn't seem worth it. And anyway this would hardly contribute 20% exra to savings.
For DH to keep this job he has to work crazy , he is quite highly paid in Indian context. If he goes to any other company pay would go down by > 50% while sched will ease up by 20-30% may be so its a hard decision. But he is working on getting a new job in same company with sllightly less stress (same pay).

3. Consider real estate. I shudder at the thought myself, but there is no path available to you without substantial risks. I think there may be some India-based REITS, although I can hardly imagine what the principal/agent issues are likely to be, to say nothing of being back in the stock market. What about starting a real estate company of your own and building/managing a few apartment buildings? This option could encompass #2 simultaneously and you might work into it over the next few years as your kids grow up and the target retirement date approaches. Being a landlord could provide pricing power, rather than being stranded as an investor. What are the cap rates that you could expect in your area for various kinds of properties? Could you attract family and friend money to set up a ltd partnership with you as the general partner? With more capital than just your own you could improve your diversification. In low income economies, like Thailand and India, wealth is more often kept in real than financial assets. Probably there are good reasons for that.
----Just have one rental property. Not really qualified to do a lot in this field, No professional REIT. Their is fair bit of corruption in real-estate market and rental returs are in vicinity of 2-4%. Also after 2008 even real-estate took a huge hit so correlation with Stock market is high as well. With decent condoes costing >$100K+ and villas could go up a million , capital needed is significant.

4. Investigate US investments, at least for some portion of your assets. It's possible that Indian inflation will be accompanied by further depreciation of the rupee against the dollar. The dollar has appreciated 14% in the last 5 years against the rupee and SS COLAs have increased the benefits by another 12% during that period. SS is orders of magnitude safer than any stock market. You could maximize your husband SS return by delaying benefits until age 70. You should check to see whether you would qualify for the spousal or widow's benefit. (From memory, you have to have been married 10 years and lived with your husband in the US for five.) Make sure that you can document your claim. Is your husband still paying into SS, as he would if he were employed by a US company or self-employed?
-----Totally agree about effect of inflation on currency rate and continuing exposure, hadn't carefully though about that. I do qualify for spousal benefits I think, we are not accounting for SS so if it comes thru that's bonus.
Later you might investigate US annuities. There are at least some that sell policies to an expat like your husband.

5. Tools. You might take a look at Esplanner after all.
---I'll spend more time with Esplanner. You have given me a great idea, I implemented a basic/crude Montecarlo using Excel for random returns , I'll try that with inflation rates and see what happens in long-term.

I think when you have run a few dozen scenarios it will have a sobering effect. You may notice how unstable the projections are. The results fall too often into the two extremes: either you end up with more than you started with or you go broke. That means that it is a hard problem even for us run-of-the-mill types who work into our sixties. Much more so for you.

At some point you might want to consider getting the best eyes in the business to look at your plan. By that I mean retaining someone like Jim Otar or Paula Hogan or whoever you think is at the top of your profession. I wouldn't stint if I were you because you have set yourself the toughest retirement planning task I have heard of.

-----We wouldn't mind spending money for qualified help but in India Financial Planning industry in nascent stages, what services are offered are really a joke sometimes. Even if planner were coompetent, there is no solid data. For example SENSEX (Indian benchmark index) constitution has been changing and not sure how that has been accunted in returns, earliest MF is only 20 years old and Index fund may be 15 years. I may consider US services but my concern being Indian environ a totally different ball-game. (I was one of the first 10 CFPs registered in Hyderabad, that should tell you something)

If you haven't already read Zvi Bodie, I would recommend his books, for instance, the latest one: "Risk Less and Prosper." He doesn't consider cases particularly like yours, but he does emphasize that the importance of avoiding unnecessary or ill-considered risks. His point is that if you can match your liabilities without owning very risky assets, why would you? I don't own any equities myself
----I read one of Bodie's books "Investments" I think while preparing for CFP exam, I will get Risk Less and Prosper. I have Engg/Math background and I can read so feel free to make recoommendations on good books.

----I appreciate and see your point in not owning Equities after more than a decade lost.

Gerntz : With power comes responsibility...

-Thanks for your contributions guys, please keep them coming.


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Old 01-30-2012, 09:30 PM   #22
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Also would consider that you live in a difficult part of the world. India has at least one unstable neighbor and one highly authoritarian one. Both have nuclear weapons. There is no way to know how that will go over some decades. Most of us don't like to anticipate such things in our investing but I think being in India you have to consider what is your flight-to-safety options.

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Old 02-03-2012, 08:59 AM   #23
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We have talked a lot about inflation so to make sure we are looking at right data I found data from Worldbank site :
* Its from 1961 (Used another site from older data)

Here are some stats on the data :

Inflation values

Average 7.756%
Std Dev5.26%
Double digit years16
Total Years54

This is not good or benign by US standards but it was much better than what I expected.

54 years is decent history so how do I encorporate/use this data in my plan (short of writing Firecalc - Sorry not qualified and committed enough) Or would assuming 8-9% inflation be a decent approximation ?

Here is last 10 years data as well :

2010 11.76%
2009 11.48%
2008 7.96%
2007 6.60%
2006 6.00%
2005 4.25%
2004 3.76%
2003 3.81%
2002 4.40%
2001 3.68%

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Old 02-11-2012, 09:22 PM   #24
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Didn't mean to disappear on you, but I was swamped with matters that are now in a lull.

When I mentioned getting a US or Canadian planner to look over your situation I had in mind skyping with Paula Hogan or Jim Otar or someone else. I don't see any reason to limit yourself to people you can meet face-to-face in India.

My point about your husband's repatriation risk is that if you were to die, he might not be able to continue to live in India, particularly if he were retired since there is no retirement visa. For that reason life insurance on you might at least facilitate his return to the States in the event that he was obliged to. But I don't know what his actual visa options would be.

As for your not being qualified for real estate management, I am sure that you can pick it up, perhaps networking with other who have more experience. It's not rocket science. And the presence of corruption might be made to work in your favor if you establish a reputation as completely honest.

But here's another income idea for you, since you are thinking hard about solving your ER problem. Why not setup a website to get an online community of people who are facing the same or similar issues? Get lots of eyes on the problem, but also access to people with wealth to manage. And then launch yourself as a financial planner specializing in the problems you have faced: inflation, foreign assets, financial planning for the very long term. So you write articles for Indian financial publications or those directed to the IT community. Give talks to groups in and around Hyderabad. These are people for whom you will have a lot of credibility. If your business goes well it might enable your husband to retire. In addition to predicting inflation one can be confident of predicting a rise of wealth to manage among the professional classes in India. I worked in the investment sector in New York (in an IT capacity) and saw what an advantage it was to be in that sector as wealth to manage grew, both because of law changes and the arrival of the baby boomers into their peak earning years. There must be a large opportunity here.

Inflation. Just yesterday my NRI friend in New York mentioned to me that the term deposit rates offered to NRIs have jumped up to 9.25% for terms of 2 years or less. So, inflation isn't going away soon. That's good inflation data that you found. You could use it in a monte carlo simulation and I think that would help you to visualize the wide error bars that your projections would require. However, keep in mind the various objections that people like Otar make about monte carlo. Just like with market returns the simulator will assume that each year's rate is completely independent of the prior year, but, in reality, there are trends just like there are bull markets and bear markets. So, you have to keep those caveats in mind. There is a monte carlo simulator in Excel or you can use a website like GNU MCSim - Monte Carlo Simulation Software for free simulation software. There are many others as well. You would want to simulate the real returns given distributions of both inflation and the investment returns of whatever products you are considering.

Hope any of this helps.
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Old 02-12-2012, 11:51 PM   #25
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Thanks for your response Khufu :

* I'll look at the possibility of skyping with Otar (Big fan of his work :-) or Hogan.
* DH has OCI card for India so he does not need to leave India if something were to happen to me.
* As far as Financial Planning and other services go, that was part of the thought process when I did CFP (coming from IT background). I am currently a Mutual Fund Distributor as well (in India). They changed the rules in Mutual Fund Industry so a very tiny % which I was making as commission is gone now. Theoritically India (specially tier 1 place like Hyderabad) should have a huge demand for honest/qualified CFPs but it has not panned out well in reality. So far my attempts in this area have met with very limited success, so while I'm not closing the doors but not really counting on much. Do make 2-3K by the way of trail for my and other clients investments.
The sad part is there is lots of misselling in India so its lot easier to make money if you compromise on ethics and sell crappy products (Insurance policies with 5-10% commission) which I'm not willing to do.
Also there is a bit of bias against women in financial field.
* Real-Estate Agent is a lucrative possibility but currently real-estate is not too thriving and the characters and methods involved are tooo unsavory for my taste.

* But I totally see the uber point of having some sort of inflation proof side income.

* Also I totally appreciate that even with 8% avg inflation and extreme volatility in stock market it is very hard to get the retirement lined up for 50 years. SWR as a planning tool may not work that great in this scenario.

Currently I'm looking at Wade Pfau's blog and his paper on "Guaranteed Floor/Upside Potential", that might be a better strategy :

Spending flexibility and safe withdrawal rates - Munich Personal RePEc Archive

* Yes I'm using one of those free Monte carlo simulators with Excel.

* Revisited availability of Immediate Annuities in India ( we have progressed to 5% simple COLA ).

Once again thanks for your contributions they have raised lots of questions in my mind regarding the impact of random & high inflation + long retirement. Risk factors definitely look higher than what I previously estimated.

Tough nut to crack, will keep working ....

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Old 12-26-2012, 10:24 PM   #26
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I came across this while searching net for early retirement plans......
Very intresting thread....

But no post since longtime ....are you guys still on with the retirement plans.
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Status Update after 10 months
Old 12-27-2012, 02:43 AM   #27
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Status Update after 10 months

I was thinking of updating the status on this post or our retirement plan in general and justanotherperson provided the nudge needed. OK here it goes -

* I managed to lock approx. $125K+ @ 9.5% per annum fixed deposit (pretax and my effective tax rate is < 10%) in govt. bank for 10 years. So that amount guarantees us living expenses till age 57-58 (Till younger kid is 26-27 so both of them are adult well settled , educated and we are clearly done with them financially) if DH retires after next 2 years. Inflation will have to be fixed at 6%, if its more than that too bad, that's the raise we got.
* Now side note is for kids education till high school (practically school fees has to be paid in India) we have separate escrow with 20% inflation rate assumed. ( Eating / Shelter & Kids Education being top priorities and education is high inflation even in USA).
* We have earmarked needed amount of money (8% inflation) for kids graduation , postgrad & marriage. We have made our peace with the fact that it is the max we can afford, they can always borrow from one bucket for other or take education loans if any further amount is needed.
* We have created buffer for medical / Emergency / taxes etc.
* Will move into own house next year 2013 so rental expenses gone. House 2 will start earning rental income 2014 to provide us vacation expenses.
* DH's job situation continues to get crappier.
* We are set till age of 58 if we retire 2014 end or beyond. Big question is will market + fixed portfolio give us 9% post tax returns needed and also can we live with 4% inflation adjustment beyond 60 and we do not live beyond 100 years of age.

Overall going towards income flooring + discretionary / bucket kind of model with heavy reliance on fixed income instruments. After age of 60 we'll get access to 9% guaranteed return instruments or more regardless of interest rate cycle. ( Rates have come down to 8.5% since inflation is down :-)

Doesn't look like DH will be able to pull till 2016 as thought earlier so I did tweaks in the plan to bucket model instead of generic SWR. (Anyway WR comes out to be < 4% and keeps going up with age as % of folio) We have second house to sell and some gold and Social Security. Working on creating an inflation adjusted source of income.

We'll see how things go.

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Old 12-27-2012, 06:30 AM   #28
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Originally Posted by DesiGirl View Post
* I managed to lock approx. $125K+ @ 9.5% per annum fixed deposit (pretax and my effective tax rate is < 10%) in govt. bank for 10 years. So that amount guarantees us living expenses till age 57-58
So you are saying you can get by on $11,875 per year, or is that in addition to other income?
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Old 12-28-2012, 03:56 AM   #29
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Rescueme our current living expenses are 11-12K (depending on dollar - rupee rate). This includes :
Food & other supplies - $220
Electricity - $50 avg
Internet / Phone / Cable - $60
Cleaning Lady - $50
Cooking Gas - $10
Community Maintenance - $100
Eatout - $125
Gas/ Petrol - $70
Clothing/ Gifts /Festivals/Vehicle Maintenance / Misc - $1000-$2000 per annum

Doc visit is $7-8, medicines $5-10 , Full medical $100 so mostly medical is taken care in misc. but Self Insurance amount is kept separate, we are a country of $1500 heart surgery :-) .
Kids Education is accounted separately ($2K per annum per child)

2-3 years down the road they would be $13-14K (taking 6% inflation). We have expense data for last 5 years and also currently we spend on cash only basis to make sure our expenses are limited to what we have taken out from ATM.

So essentially $125K+ interest (post tax) can be considered as cash bucket which would take care of expenses for 14 years (Higher expenses and limited flexibility due to kids). This allows our remaining retirement capital of $210K to grow for 14-15 years and provide for remaining years of life.

Retiring in very early 40s is definitely tricky but DH's current high paying job may not continue for long (Next job could be 20% less work with 50% pay cut) also statistically speaking average life expectancy for Asian Indians is easily 10 years less than Caucasians so our retirement may not be very long but still we are talking about 40+ years.

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Old 12-28-2012, 06:48 AM   #30
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Wow, orders of magnitude differences in the relative numbers between India band North America. I guess this is the premise for the recent movie "The Best Exotic Marigold Hotel" in which a group of British retirees move to Jaipur to make their nest egg last.

It's always interesting to hear from you, Desi!
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Old 12-28-2012, 07:17 AM   #31
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Thanks Meadbh.
One reason being what is considered very frugal in USA is norm for middle class India. For example -
* I cook roti (whole wheat tortilla) from scratch twice a day. Cook 80 out of 90 meals a month at home.
* We eat meat (chicken/fish/shrimp) 2-4 times a week and even then a $7 pack of biryani (Rice & chicken) feeds us 1+ times.
* AC is hardly used 3 months in an year, fan works beautifully whole year.
* Cloths are line dried and if needed hand washed.
* Dishes are done by hand (me or my cleaning + dish lady who comes twice a day ).
* Kids do not have any activity other than Karate ($20 per month) they just play with neighborhood kids.
* Medical & Insurance expenses do not kill us (That has to be a big one).
* No alcohol expenses.
* For vacation we travel in trains. $250 takes family of 4 across India in First AC sleeping cabin with 3 meals + 3 tea & snacks included (Does take 20 hours).
* Could hire a Driver for $250 per month or a Cook for $75 a month which I don't.
* Eat lots of veggies & tropical fruits which are mostly 25-50 cents a pound.
* Dress simply but good quality and keep wearing them till they wear off.
* Not into makeup / shoes / bags, I hardly utilize the $10 facials / pedicures & manicures.

So its a simple life but a happy one.


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