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8.3% guaranteed return tax-free in India
Old 01-25-2012, 12:10 AM   #1
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8.3% guaranteed return tax-free in India

Here is my introduction/background :

Hello from India, couple late thirties with 2 kids

DH should be able to retire in 2016. We are getting an opportunity to get 8.0% tax free guaranteed return for 10 years (annual interest payment) locked for 10 years or 8.15% for 15 years lockin. These are Indian Railway Bonds so very safe.
Currently DH is in 30% tax bracket but post-retirement he would be in 10% bracket still tax adjusted return is 9+% . We are thinking of 5% inflation adjustment per year (can't really accoount for erratic and sometimes extremely high Indian inflation so life-style would probably be sliding down slowly unless Indian market has major bonanza years which it sometimes does) and 3% withdrawal rate . So I'm thinking with super volatile Indian stock market these guaranteed payments may make a good income stream.
Also since inflation is going down supposedly Indian interest rate cycle is supposedly peaking so rates are definitely towards high side.
Window of opportunity for these bonds opens and closes on 27th January.

Please share your thought , ideas specially from portfolio structuring point of view ie should we go for something which may not have major upside but will reasonably meet our needs, if so what % of current income needs could be generated using this specially since retirement is still 4.5 years away.

Thanks,
DesiGirl
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Beauty of Inflation??
Old 01-25-2012, 12:38 AM   #2
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Beauty of Inflation??

Was reading my introduction and realized inflation works amazingly in India in many different ways :

Within 2 years :
* DH's income has gone up from 75K to 110K (without any job change or major promo) it would be even higher if Re-$ rate wouldn't have gone down from 40 to 50 (Re per $).
* Annual savings have gone up from $30-35K to $55-60K.
*Off-course expenses have gone up from $25K to $35K. Partially due to a bit of voluntary life-style upgrade as well.

I don't think inflation would look beautiful after retirement once we have to live off of investment income.

-Desigirl
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Old 01-25-2012, 02:18 AM   #3
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Hi DesiGirl,

My only concern would be if inflation spiraled upwards, as that can be difficult to predict with any accuracy. I would certainly diversify to other asset classes as well, but this seems like a good option for the fixed income portion of your portfolio.

PS I find your posts really interesting! Fascinating to see the similarities and differences in retirement planning in 2 different countries and cultures. Thanks for sharing.
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Old 01-25-2012, 01:28 PM   #4
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Hi DesiGirl,

My only concern would be if inflation spiraled upwards, as that can be difficult to predict with any accuracy. I would certainly diversify to other asset classes as well, but this seems like a good option for the fixed income portion of your portfolio.

PS I find your posts really interesting! Fascinating to see the similarities and differences in retirement planning in 2 different countries and cultures. Thanks for sharing.
I also think her posts are interesting.

However, I question whether there should even be a fixed income portion of a portfolio, other than very short term deposits, in an inflating, rapidly developing country.

Even in the US, I see fixed income as a trading strategy, not a safe long duration committment.

Ha
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Old 01-25-2012, 02:01 PM   #5
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With India's average inflation at 7.99% ( over 40 years) and current rates approaching 9.5%, I do not see it as a winning strategy over a 10 year time frame.
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Old 01-26-2012, 06:41 AM   #6
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Thanks Caninelover & Haha for finding my posts interesting.
Thanks for actually checking the inflation data and giving a crisp response NYEXPAT.

First things first :
India's Inflation index calculation is far from accurate since it is based on Wholesale price index and not Consumer price index :
How India calculates inflation
The Finance Blog: How is WPI inflation rate calculated in India?

The items included here and their weightages are very far from budget of a typical Upper middle class family.

So I'm really stuck with calculating my personal inflation.
What kills you is food, education and life-style inflation. Evverything being double digit. Food is OK since it is 10% of the total budget, education again is easy since its only limited years now things like Gas, vacations, eat-out in terms of entertainment and may be medical and other services might prove to be killer.

Also for few years it stuck to 3-4% and some years it is clearly double digit so volatility in inflation and also in stock market is easily in the range of 30-40%. And based on my limited excel simulations I have seen that volatility/deviation is Biggest enemy of planning. So lots of super-duper returns of Indian market are useless due to excess variation even though average is still double digit.

So for me inflation rate is shot in dark, market returns are shot in dark (I would want indexing to work since do not have skill-set/time/energy to actively trade). This makes me want to go conservative even though I clearly know fixed returns are not beating inflation by any means. Also I'll need to use lifestyle sliding since I don't see anyway to afford adjustments according to official inflation. 30-40% of our budget is life-style based like vacations/eatout which can be trimmed if needed also it is possible for us to trim expenses to bring ourselves down to middle class without too much pain. Ideally 2% withdrawal rate would be nice for 50 year retirement but I see how my Husband is burning out, not very toxic environment but jsut huge amount of work and its not possible to scale-down without huge cut in income (which is what is fuelling our aggressive saving schedule).

Post retirement I would want to broadly put 250K in fixed income @ 8% for 20K annual income and 300-400K in stock market (+extra emergency fund of 50-60K in cash/bond 8% return) and each year transfer 4-5% of stock market into fixed income pot so as to get the inflation adjustment. So still it would be 60:40 and also rental house will tentatively provide 5-6K with asset value at 250K+ approximately.

So I would love thoughts, ideas , experiences regarding managing this type of investment+inflation environment for a very long retirement (Plan is to retire @ 44+ ).

-Desigirl
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Old 01-26-2012, 06:45 AM   #7
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BTW I love the dry biting sense of humour in your posts Haha.
In fact apart from knowledge,wisdom & information I really get a feel in this forum that most of the posters are extremely smart with solid values and discipline so I really enjoy the posts.
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Old 01-26-2012, 07:56 AM   #8
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A 10 or 15 year bond can lose a lot of market resale value if interest rates do rise substantially. I would agree with HaHa, that short term duration commitments are safer and over time you may be better off investing in growth.
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Old 01-26-2012, 10:18 AM   #9
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BTW I love the dry biting sense of humour in your posts Haha.
I like the wordplay in your posts:
Quote:
Evverything being double digit.
Subtle, witty & visually informative. +1
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Old 01-26-2012, 11:45 AM   #10
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Thanks for the compliment Nemo2.

I agree with the possibilty you have raised MichaelB , our only protection being interest rate cycle has supposedly peaked according to experts. For growth options in India arre Stock Market and Real-Estate. Unfortunately for both of them volatility is significant (probably 50-100% higher than US total stock market) and tons of manipulation and insider trading as far as stocks go. We do have 30% (approx) of retirement assets in a rental house which should give us 2.5-3% rental. Logically big dose of stability / fixed income investing is needed to counter that but India does not have any real Bonds for retail investors. Dividend yield on value stocks is not that exciting either. No real COLA annuities available.

Try searching early retirement + India and see the quality of results. It shouldn't be but unfortunately it still is Rocket Science in India. I'm really struggling to find good data or portfolio strategy which could work in Indian environment. And the biggest joke is that I'm a CFP. ( I'm stay at home mom retired from software , wanted to manage our own retirement, study comes easy and it was dirt cheap in India so did that for ourselves).

So anything , any nugget of wisdom .... Is it even safe to try this in India even with 3ish% variable withdrawal rate, extra assets of 250K in rental house & 500K in primary residence which can be scaled down to a 100K apartment if needed. (+80K gold)
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Old 01-26-2012, 12:54 PM   #11
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@ Desigirl,

I went through both of your threads and really admire how much thought have you put into it. I admit that I didn't put so much thought and was running after SENSEX numbers. (Originally from Mumbai, on the way to buy an apt in Pune. I am done with Mumbai, can't stand crowd and the cost of living.)

I am not crystal clear on your total asset allocation but from your old thread, you may want to crunch your numbers again, especially the medical expenses. The days of $5 fees are gone (at least in Mumbai and Pune) My mom's cardiologist charges $20 (INR 1K) consulting every time she goes for a check up. My dad's ophthalmologist costs the same. My niece's ped costs the same (so they started going to a medical school clinic lately.) Factor in the cost of medications which is spiraling. With insurance coverage you are talking about, I am really not so sure about what they claim and what they pay. There is far larger gap. Indian system is going the US way and going to burn a BIG BIG time.

I would factor lot larger inflation than you are currently considering. Reasons, you have already mentioned, volatility. Investing in real estate may not be the greatest idea at the moment, esp in Hyd or Scd. AFAIK, both are flooding just like Mumbai, instead how about buying agricultural land outside which will be NAed in future?

When I was transferring money to India, my min. expectation was money should grow at inflation rates but it never happened, so I went to gold but now even gold is skyrocketing. You have money in Indian Railway Bonds but I guess you are losing a big time there (depends the number sitting there) Last time I looked at ICICI FDs, I was getting 9.50 for 18 month CDs (I have $20K just sitting there). I would give a thought on that.

If your husband can travel abroad, having a NRE account with some locked in as FCNR would help. Yeah, interest rate would be low but it will be at least at par with those currency inflations (I have some in GBP and EUR, just sitting renewing every year with Axis Bank)

In earlier thread you mentioned the cost of apt as $50-$60K. I would go for them instead of mansions, if you want rental income to get you going during the retirement. My Pune apt is costing me $150K for 1100 sq ft and possession is 2 years away. I don't know how many folks would be interested in renting your McMansion but certainly fully furnished apt could be rented easily for traveling/short term IT folks. (Thats my goal with this apt. We can not leave US as we have a child with special needs and we could not get him services in India, even when we were willing to pay in full.)

You sound good with children education department.

With your withdrawal, its difficult to predict but taking into current scenario, you seem to be in a good shape (My dad did the same you are doing and now he is pretty easy on his FDs) If inflation skyrockets and/if anyone of you starts getting any health issues (hope not) then you will have to crunch numbers again.
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Old 01-27-2012, 01:34 PM   #12
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In many countries there are inflation-indexed bonds available (i.e., they pay inflation plus a real interest rate). Currently in the U.S. these pay essentially inflation plus zero or even slightly negative, but I imagine in India it would probably be a different story due to lower credit availability. It would be a way for you to hedge against inflation (assuming that the inflation index used by the bond issuer were a reliable one, that is). Are there similar instruments from either the Railroad or the government in India?
When doing financial planning for retirement, you are dealing with very long time horizons, lots of things can happen that would impact the inflation rate over the long run and it compounds pretty quickly, so I would be worried about relying on a fixed interest rate that is pretty close to current inflation and relying on a backup plan to adjust lifestyle to compensate if things went wrong... if inflation were to stay at 8% a year, in 10 years that fixed income would only cover 1/2 of the expenses that it covers today and only 1/3 in 15 years!
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Old 01-27-2012, 03:25 PM   #13
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Originally Posted by DesiGirl View Post
BTW I love the dry biting sense of humour in your posts Haha.
In fact apart from knowledge,wisdom & information I really get a feel in this forum that most of the posters are extremely smart with solid values and discipline so I really enjoy the posts.
Ha does have a biting sense of humor and is well-spoken. Hell, I have to keep a dictionary close by to interpret half his posts.
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Old 01-27-2012, 08:11 PM   #14
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Originally Posted by DesiGirl View Post
Here is my introduction/background :

Hello from India, couple late thirties with 2 kids

DH should be able to retire in 2016. We are getting an opportunity to get 8.0% tax free guaranteed return for 10 years (annual interest payment) locked for 10 years or 8.15% for 15 years lockin. These are Indian Railway Bonds so very safe.
Currently DH is in 30% tax bracket but post-retirement he would be in 10% bracket still tax adjusted return is 9+% . We are thinking of 5% inflation adjustment per year (can't really accoount for erratic and sometimes extremely high Indian inflation so life-style would probably be sliding down slowly unless Indian market has major bonanza years which it sometimes does) and 3% withdrawal rate . So I'm thinking with super volatile Indian stock market these guaranteed payments may make a good income stream.
Also since inflation is going down supposedly Indian interest rate cycle is supposedly peaking so rates are definitely towards high side.
Window of opportunity for these bonds opens and closes on 27th January.

Please share your thought , ideas specially from portfolio structuring point of view ie should we go for something which may not have major upside but will reasonably meet our needs, if so what % of current income needs could be generated using this specially since retirement is still 4.5 years away.

Thanks,
DesiGirl
DesiGirl,

I think retiring abroad in a lower cost-of-living country is a great approach in general. However, I don't think you have enough money to retire so young. And I think you should approach the planning task more carefully. For one thing, using a fixed withdrawal rate to guide your planning decision is weak. Although I know it is popular on this and other boards. But it's too coarse. What's more, the 4% supposed "safe" withdrawal rate was originally proposed for a the retirement lifetime (20 years? 30?) of a 65-year old, not a young person. If you were to try to calculate a similar number for someone as young as you the "safe" withdrawal rate would nearly vanish. But that's not the right approach anyway. If your investment returns suffer, will you continue the fixed percentage draw and just figure the long-term odds are good or will you adjust your expenses downward? Another way to look at it is to consider the large increase in your husband's salary and figure how likely you are to be able to accomplish such an increase as an investor.

In addition, managing an investment in a place like India, with a financial marketplace much less developed than the US, with the high volatility, without the transparency and with the huge inflation rate, boggles the mind. You have to ask yourself not do you have enough money to live on, but do you have enough money to ride out the volatility? My guess is that you don't and the likeliest result is that you will experience gambler's ruin, i.e. eventually lose enough so that you can't recover.

Just as background, I retired last year to Bangkok. I would never invest in Thailand even if I could figure it out which would take a long time at best. I recognize that this exposes me to a currency risk and it is entirely possible that I could be forced out of Thailand by a declining dollar. Even in that case however, I still wouldn't be broke.

My advice is to keep the husband working for a long time and to make a much more serious financial plan including projections that reflect a large range of investment results and inflation rates.
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Old 01-29-2012, 03:37 AM   #15
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Thanks for constructive responses Noelm, Boatfishandnature and specially Khufu. Dawg52 we are absolutely on same page.

* Just for update the opportunity for those bonds opened & closed and based on popular sentiment I decided to pass.

But rest of the discussion is very very useful so let me try to share my thoughts on some very good points raised by you guys.

Thanks for compliment Noelm.
As a general comment its interesting for me to realise the differences in Hyderabad & Mumbai.
-Yes $5 fees Doctors are available only in older middle class parts of city now but even in fancy hospitals like Appollo I have not seen any specialist charging > Rs600. Our Ped & General Physicial are charging Rs400 (and these are quite good practices who charge a premium compared to more basic setups). So Now its $10.
- We are to live in a McMansion ( 5000 sqft), DH's veto won't be this way if I had my say
-The rental house is 2800 sqft 4 bedroom villa and based on Hyd dynamics is more rental friendly since availability of apartments is in thousands as compared to very few closed community fancy villas. Even when we look at rental return and ease of renting they do Ok as comapred to apts. Also even decent apts are costing 80L-1C ($250K) so at < 1C in outskirts the appreciation opportunity seems better. It was actually agriculture land converted to residential and a closed community of 140 villas and 300 apts built on it.
-Yes I do know inflation is a big huge "?".
-We do have exposure of $50-100K in US currency in terms of some stock grant and Orange CD.


-There are no inflation indexed bonds available in India or COLA annuities.

Khufu once again thanks for cautious/negative response , if I convince you that we are not on slippery slope or u convince me that we are either case its a WIN for me so thanks again. Now I'll try sharing my thought process :

* Our income needs are $14K for regular expenses + $6K for vacation. (In today's money).
- Vacation is supposed to be generated by rental income so if that is low we do not spend much on vacation.
- For $14K annual income this is my best withdrawal algorithm so far. I'll get 7.5% post tax from RBI bonds (Have been availabble for last 20 years at same rate), could be more in higher interest rate & inflation environ. So I'll put $200K in RBI Bonds to get 15K per annum (rough calc).
- I'll put $250K in Indian stock market. In +ve market years we'll take
4-5% and move it into Bonds. Eg first year $10K may be moved and additional interest for next year will be $750 which is 5% inflation adjustment comparred to previous year.
-So we'll essentially be withdrawing 15K per annum from 450K
(3% S(?)WR ) + we have 100+K extra assets
- Apart from these 2 we'll have 50K in emergency/medical self insurance/cushion amount in cash/RBI Bond @ 7.5% .

Our Buffer mechanism :
* For last 5 years our personal inflation has been 5-6% .
* 70-80K worth of Gold, not accounted anywhere.
* Rental house can be liquidated.
* Primary residence can be downgraded.
* Kids will be 15 & 12 @ retirement so will be independent in 10-12 years.
( College & marriage expenses are taken care of comfortably) So after 12 years downgrade in lifestyle will be easier.
* As a side note new house + new furniture and appliances so won't need them soon enough and anyway basic stuff is quite cheap.



The kicker for me is I luv DH enough that I'm willing to take some amount of risk (>90% chance of success is good) b'caz he is really burning out. If he were to continue working, we could lead a very comfortable life but but but....

Let me turn the question around and ask given the volatility in Indian market and inflation and very long retirement what is the WR which can be considered safe (relatively) or what is the asset base which will make this possible ?

Once again thanks a lot for all the respponses.

-Desigirl
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Old 01-29-2012, 08:45 AM   #16
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Desi,

I am glad that you respond positively to a skeptical view of your plans. Rest assured I am trying to be helpful.

Indian medical costs are certainly cheap, hospitals like Apollo have a very good reputation and your Plan B downgrade options are good thinking. Your USD 14k burn rate is admirably low.

Nevertheless, I still think your chances of success are probably much less than 90%. I would like to make several points, but the only way to answer your question is with a comprehensive counter plan, which is obviously beyond the present scope.

1. As I mentioned before, the SWR approach to long-term retirement budgeting is inadequate in general, but even more so for the very long retirement that you are planning. You might review the objections to the SWR in general, starting here:
Trinity study - Wikipedia, the free encyclopedia

I am pretty certain there are no studies to determine the SWR for a 50 year retirement in a high inflation developing country. So, there is no basis for estimating any SWR in your case, in my opinion.

2. Here are the recent inflation rates for India, from here:
India Inflation rate (consumer prices) - Economy

2005 3.97
2006 6.268
2007 6.373
2008 8.349
2009 10.882
2010 11.989

So, your 8.5% RBI bonds currently lock in a substantial negative real rate of return. What do you imagine that does to your bond portfolio after several decades? I know that you are thinking about inflation, but it looks as though you are underestimating it. Even if your self-reported rate is truly only 5% or 6%, that is huge over the long run.

3. Why do you want to put your money into the stock market? You already face substantial risks from inflation, why would you want to take substantial, additional risk with so much of your portfolio? Are you thinking that the stock market is the solution to the inflation risk? It didn't work that way during the high inflation period of the 70's in the US. The market was flat for 1966 through 1982, but when you accounted for inflation the purchasing power of your investment you ended up down 30%. You would be compounding your risk, not reducing it.

4. Although you don't say so, you appear to subscribe to the theory that in the long run stocks are safer than in the short term. Your plans to move assets from stocks to bond in a linear fashion implies a belief that as you get older it would be safer to reduce equity risk in a straight line. There is a lot of advertising designed to encourage us to believe this, but it isn't so. More careful analyses point out that the risk to portfolio longevity from loss is not linear. The risk is at its maximum just before retiring and just after, which puts you in the high risk zone right now. When losses occur at this time they can't be made up because the need to live off the portfolio means that drawdowns lock in losses. There are several writers who make a good case for this analysis: Larry Kotlikoff, "Spend 'Til the End" and James Otar, "Unveiling the Retirement Myth" available as a cheap pdf from his website: otar retirement calculator Read, in particular, his chapter on the Sequence of Returns.

5. The financial planning software that I use, esplanner from esplanner.com, is the most powerful such software that I am aware of. However, since it incorporates US tax rates and Social Security payout calculations, I don't think it would be of much use to you. There may not be any good tools available for your planning purposes. That is another risk factor, especially since it puts you in the situation of having to rely on inadequate rules of thumb.

6. I understand and sympathize with your husband's wish to retire. I worked until 62 and thought about retiring for many years before I did. However, and here I am making some assumptions about career patterns in India that I don't know know about, by giving up his career in his forties he gives up his peak earning years, which cannot be replaced. Since salaries are usually one of the best sources of protection against inflation, the loss to your financial strength by forgoing the best years may be even greater in India than in the first world.

5. What, if I may ask, is your legal status in India? Are you a US citizen married to an Indian? If so, what happens if your husband were to die? I believe that India does not currently offer any retirement visa. Would you be allowed to remain? If not, might you be forced to return to the US without enough assets and without access to the various safety nets?

So, I see you sitting on two time bombs, inflation and Indian equities, while you are cutting the branch off that you are sitting on, your husband's labor income. Of course, it might work out, but I think you underestimate the risks. The consequences of a failed retirement plan might be dire.
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Old 01-29-2012, 11:18 AM   #17
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Oh man Khufu you are making it so hard but Thanks for your skeptical view , I trust that you are trying to be helpful.

* OK I'm an Indian citizen married to a US citizen so if he were to pass away untimely I won't be forced to move back to USA.
* DH has enough credits that he qualifies for Social Security but I do not want to count on that.

Hmm now I have tackled the easy part of your post.

I totally understand (may be I'm under-estimating) the devils of Inflation, Volatility of Stock Market Returns, very long retirement and the issues with SWR.
BTW Otar's book is one of my favorites and have read it a few times so I totally understand the huge importance of sequence of returns.
From my selfish point of view with the money DH is making and what we are satisfied with we would literally be rolling in money if he were to work even till 55. (Burn rate of 20K with Gross income of 120K)
And to clarify he would work till 50-55-60 (till whatever point he is able to survive in the high stress crazy environ of MegaCorp) but but but.. its me who is the decision maker , he makes money, I plan for it and spend it. So I want him to come out as soon as he possibly can without taking undue risk. I have seen him age in last 5-6 years (he'll be 40 this year) and its so hard .. life would be lot better if I loved him a little less.

And yes you are absolutely right in saying India hardly has good data or tools available to plan early or even normal retirement.

BTW the accumulation portfolio/ plan we have is another beast altogether approx 50K savings per annum are going into 9.5% (current rate no taxes whatsoever) retirement plan accessible without penalty or taxes even after early retirement. We have 300K stock exposure India & some Us across retirement and kids marriage portfolio and then some.

Why don't you PLEASE take a stab at counter-plan. Any thoughts , any ideas, anything , a start Anything to improve upon what I have..

Ending note I'm gonna say this when we started our jobs almost 18 years ago together we were making $3000 per annum (as S/W Engineers), we could still live and eat on $6-8K (not that we would want to) so come Oct 2016 (That's the date I'm trying to make it happen) we may still take our chances or decide to postpone (Don't know that yet)

-Desigirl
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Old 01-29-2012, 12:04 PM   #18
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I'm coming to this thread late but it is pretty interesting. BTW, the posts are so long that I just tend to skim them. So sorry if I missed some thoughts and requirements.

My take would be to think like a US citizen and then translate back towards India. I'd presonally not put too much of my wealth in India even if an Indian citizen. Our neighbors are from India but the husband gets US investment news and analysis (I pick up their papers when they are on vacation). So they obviously have made the mental switch.

So run FIRECalc and try to imagine how to create an Indian/US portfolio that gives you some degree of safety + growth.

Look at the Vanguard broad portfolio types here: https://personal.vanguard.com/us/funds/vanguard/all?sort=type&sortorder=asc#hist::upperTB=perfTBI| lowerTB=avgAnnTBI
Do this by clicking on "balanced" in the far left, then look at some sample portfolios. For instance, click on "Target Retirement 2020", then go to the Portfolio & Mangement tab. Now investgate those few funds to see how they are made up. They are very broad and cover world stock investing -- but with a US centric stance.

Hope this helps a bit.
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Old 01-30-2012, 07:10 AM   #19
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Desi,

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.

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.

I would also underline that, in my opinion, the task of retirement planning is like making medical treatment decisions in that the goal should usually be to avoid the worst case outcome, rather than to maximize the expected or average result. Not everyone would agree. There are folks on these boards who seem to regard leaving a legacy as a kind of failure. As I see it, your job is mostly risk management.

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.

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.

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.

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.

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.

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?

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. Since your husband is a US citizen and taxable on his worldwide income, esplanner's tax calculations might be close enough. I don't know whether there is a tax treaty between the US and India and, if so, whether his total taxes to both countries would be about the same as his US tax. The benefit of Esplanner is that you can run scenarios with different return rates, different inflation rates and changes in the inflation rates. Esplanner accepts your predictions for inflation (and other parameters) and then show all its calculations on your taxes, assets, SS payments, annuities, RE returns consistently in today's dollars for the whole future. There is a monte carlo module, but I wouldn't bother with it since the distribution of returns is probably based on the US market. It would be much more useful if it had a monte carlo simulator for inflation rates, but it doesn't and I don't know of any product that does.

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.

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 wish I had something more concrete to offer.
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Old 01-30-2012, 07:57 AM   #20
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Originally Posted by DesiGirl View Post
its me who is the decision maker , he makes money, I plan for it and spend it.
-Desigirl
Hilarious! I'd love to be in that role!
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