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
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.
-----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.
-DesiGirl
