early retirement in india

[mask]

Hi, this is my first post. I'm male, 30, married, no kids, wife 30, not working. I live in India and earn in India. I have three houses in India currently worth USD 200K with mortgage USD 100K. I plan to repay all three mortgages in full in next two years. Also plan to buy 2 more houses and pay it in full before I turn 40.

I don't have any liabilities other than mortgage. My parents are retired and are NOT dependent on me (thought it would be worth mentioning since most people in India in my age group have dependent parents.)

I have three term life insurance policies totaling USD 100K to cover each of my mortgages. Additionally I have term life insurance worth INR 5 million each for my wife and I and health insurance (medical insurance) worth INR 500K. Don't have any other assets except emergency fund of INR 500K (USD 11K).

I aim to retire at 45. But before I do so, I plan to stack up INR 4,00,00,000.00 (INR 4 crores or INR 40 million) in cash by selling three out of 5 houses plus my bank balance. Even at 6% guaranteed return, the interest alone comes to INR 200K (USD 4.5K) per month. Current guaranteed returns fetch up to 8.5% but I wanted to be conservative.

My current average monthly expenditure incuding insurance (life and car), property taxes, vacation, shopping, groceries and other household expenses (TV, internet, electricity, gas etc.) comes to INR 61,500 (USD 1.4K) per month.

I don't understand stock market, don't trust financial advisors in India and want to put my money down only when returns are guaranteed. Do you think I have a sound plan? or am I missing something? Would love to hear your views / opinions / comments.

 

[Alan]

Welcome mask

I moved this thread from Health to the "Hi I am" forum

Where in India do you live?

 

[mask]

Hi Alan! I live in Pune.

 

[Alan]

Hi Alan! I live in Pune.

Then it's already 2011 there (I think) - Happy New Year

I spent a couple of weeks on business in Mumbai in 2007 which is not too far away from Pune. Are you from that region? I'd be interested in learning a little more of your circumstances.

 

[Martha]

It may be tough to find people here who are at all familiar with investing in India. Good luck!

 

[mask]

Then it's already 2011 there - Happy New Year

I spent a couple of weeks on business in Mumbai in 2007 which is not too far away from Pune. Are you from that region? I'd be interested in learning a little more of your circumstances.

Sure. I'll be happy to answer your questions.

 

[FIRE'd@51]

am I missing something?.

Welcome, mask

What is the inflation rate in India and have you figured it into your analysis?

 

[Alan]

Sure. I'll be happy to answer your questions.

Great.

Are you from that region?

What are you doing in Pune?


I think it is a fairly large city - do you work in the business center and how do you get around? My colleagues in Mumbai, both locals and European secondees worked at our offices in the center but commuted in from the suburbs rather than drive in. I had a taxi and driver assigned for the time I was there and couldn't imagine myself driving in the city.


PS

I'm not going to be able to give investing advice in India but am fascinated by the country.

 

[mask]

Welcome, mask

What is the inflation rate in India and have you figured it into your analysis?

Currently inflation in India its about 10%. Food inflation is 15-16%. As per my understanding inflation in the long run would range between 5-6%. I might be wrong here and that's why I need help. I have taken 8% in my calculations. Should I be more conservative?

 

[walkinwood]

With so much of your net worth tied to real-estate, what happens if it crashes? Don't say it never will. A lot of people around the world said that in 2007.

In your shoes, I would feel more comfortable diversifying my investments.

 

[W2R]

Hi Alan! I live in Pune.

Hi, mask! How lucky you are to be in India, where I would imagine it is probably warm and summery right now, while the U.S. and Europe dig out from various snowstorms and blizzards!

Even here in New Orleans it was below freezing several nights last week, and I had to cover my more delicate plants for protection from the cold.

 

[Brat]

There are no guarantees in investing, any one who tells you that should not be trusted. My mother once told me not to spend my money all in one place. That was wiser than she knew. Invest in a variety of businesses, don't use just one investment manager. Spread your invest-able money around.

In my opinion the best US investment company with an India fund is operated by Matthews, MINDX. This is a small fund by our standards but your stock market is also small. Matthews specializes in the Asia Pacific region.

You are in a unique position to know what your region will be needing in the future. Were I to guess it would be raw materials so take a look at mining mutual funds.

Many US mutual funds may not be available to you but the principal is the same.

 

[FIRE'd@51]

Currently inflation in India its about 10%. Food inflation is 15-16%. As per my understanding inflation in the long run would range between 5-6%. I might be wrong here and that's why I need help. I have taken 8% in my calculations. Should I be more conservative?

Your current expenses (in USD) of 1.4K x (1.08)^15 = 4.5K per month (54K per year) when you are 45, but what happens after that? Even if inflation is "only" 6% long-term, you will be earning a 0% real return on your retirement portfolio, so you will have to draw down your portfolio to keep pace with rising expenses. If I've done the arithmetic correctly, INR 40 million = 900K (USD), so you will draw down your retirement portfolio in 900K / 54K = 16.7 years, when you will only be 62.

 

[mask]

Great.

Are you from that region?

What are you doing in Pune?


I think it is a fairly large city - do you work in the business center and how do you get around? My colleagues in Mumbai, both locals and European secondees worked at our offices in the center but commuted in from the suburbs rather than drive in. I had a taxi and driver assigned for the time I was there and couldn't imagine myself driving in the city.


PS

I'm not going to be able to give investing advice in India but am fascinated by the country.

Mumbai is very different from Pune. Mumbai is fast where Pune is not (relatively speaking). In Pune, I commute by my car. My office is just 5 min drive from my place. For commuting to longer distances (anything more than 2 miles) one just cannot avoid traffic except for early mornings and late nights. Public transport in Pune is no where close to that of Mumbai so a car or a two-wheeler is a must.

Best (read fastest) way to commute in Mumbai is local trains though it would be a cultural shock especially for Europeans to experience the crowd. Trust me it is worth getting used to the crowd to save time. Just be very careful about your wallet, laptop or any other valuable. Depending on the distance between train station and place of work and the weather, one might choose between walking and taking a taxi.

In case comfort takes priority over time, then you are better off travelling in an air conditioned car driven by a chauffeur. You might as well use that time to work on your laptop or eat dinner while sitting in the car
Hope this helps!

 

[Alan]

Mumbai is very different from Pune. Mumbai is fast where Pune is not (relatively speaking). In Pune, I commute by my car. My office is just 5 min drive from my place. For commuting to longer distances (anything more than 2 miles) one just cannot avoid traffic except for early mornings and late nights. Public transport in Pune is no where close to that of Mumbai so a car or a two-wheeler is a must.

Best (read fastest) way to commute in Mumbai is local trains though it would be a cultural shock especially for Europeans to experience the crowd. Trust me it is worth getting used to the crowd to save time. Just be very careful about your wallet, laptop or any other valuable. Depending on the distance between train station and place of work and the weather, one might choose between walking and taking a taxi.

In case comfort takes priority over time, then you are better off travelling in an air conditioned car driven by a chauffeur. You might as well use that time to work on your laptop or eat dinner while sitting in the car
Hope this helps!

Thanks for the info

The manager at our office there is from Europe and he told me that he used a chauffeur driven car to get into work from where he lived in Goa, but that they did own a car and drove themselves when not in Mumbai. His wife was with him, but his 2 kids were back in Switzerland at college.

The locals used trains to get in and whenever I got into work at the start of the day and went to the restroom, it was usually full of guys putting on their ties etc.

It certainly sounds like you are from India - how did you come across this forum? I had assumed you were an American that had relocated.

 

[desihopeful]

Happy New Year Mask! Good to see a few folks from India on this forum. Congratulations on your progress so far, 3 houses by 30 is pretty impressive. Here are a few random thoughts that crossed my mind:

1. Pune is a nice city. I am guessing you are in the IT field. Are you looking to retire in Pune?

2. Being solely dependent on real estate sounds extremely risky.

3. You mentioned no kids. If you plan to have kids someday, it might throw off your calculations by quite a bit.

4. Inflation is the big X-factor in any early retirement financial plan, when it comes to India. I am not sure you are considering it in your computations. Rather than work with a 6% conservative interest return, you should probably consider a Safe Withdrawal Rate (SWR) in the range of 2% of your total portfolio, to determine your income per year post retirement.

5. 2 more houses before you turn 40, is again quite impressive. You must be saving a large portion of your take home salary. Good for you.

6. Is your medical insurance, company provided? I have been struggling to find a inflation-indexed medical insurance. 5Lakh medical insurance today, will not be worth much in 5yrs at the rate at which medical costs are inflating. Do you know of any good medical insurance products that are inflation indexed?

7. What kind of rental returns are you getting on your houses? Rental returns are very poor here in Bangalore, and I find most home owners are counting on property appreciation, with the hope of being able to find a buyer at the end of 10-15 yrs for their apartments. Quite a bit of risk involved in this strategy in my opinion, particularly for apartments/flats.

Would be glad to hear more from you, and learn about your early retirement planning.

 

[mask]

With so much of your net worth tied to real-estate, what happens if it crashes? Don't say it never will. A lot of people around the world said that in 2007.

In your shoes, I would feel more comfortable diversifying my investments.

While I agree with you in principle that diversification is key to de-risk ones portfolio, and also agree that it is foolish to say that real estate prices with never crash; here is my justification for weighing heavily on real estate.

Google india economy outlook 2030 and McKinsey report on urban india 2030. You will find several articles and reports from various institutions indicating tumultuous economic growth for India. Predictions are that we will be the third largest economy in the world in 4-5 years from now behind China and US. GDP growth rate will remain 9% till 2030.

Currently 65 to 70% population of India lives in rural areas. With growth in economy, population moves from rural to urban areas. Also current home ownership rate in India is only 30% compared to 70% in the US. So in the next 10 to 15 years, there will be lot of demand for real estate in India.

To put it into perspective for you, my generation in India is experiencing similar to what baby boomers experienced in the US between 1980 and 2000. Stock market and real estate moving north, rapid economic growth etc. However our banking is far more regulated and controlled than the US and also we always have the option of learning from the mistakes US had made e.g mortgage backed securities, high risk lending etc.

Lastly, investing in the market needs thorough understanding of the market and economy which I don't have. I don't know how to make the best portfolio mix and nobody has been able to beat the market consistently. So I would not want to risk my money in the market at all unless the returns are guaranteed. Hence I am invested heavily in real estate.

In case things don't work out as planned, we always have 2 more houses to fall back on. Also our average spending is 1.5 to 2.0X the average spending of an average indian family with kids. So we can always cut down our monthly spending to under INR 35K from INR 61.5K simply by eliminating vacation, shopping and eating out.

I am only trying to be the devils advocate here to put my plans through a thorough litmus test. I really appreciate your questioning. Please keep your questions coming. Thank you!

 

[mask]

Happy New Year Mask! Good to see a few folks from India on this forum. Congratulations on your progress so far, 3 houses by 30 is pretty impressive. Here are a few random thoughts that crossed my mind:

1. Pune is a nice city. I am guessing you are in the IT field. Are you looking to retire in Pune?

2. Being solely dependent on real estate sounds extremely risky.

3. You mentioned no kids. If you plan to have kids someday, it might throw off your calculations by quite a bit.

4. Inflation is the big X-factor in any early retirement financial plan, when it comes to India. I am not sure you are considering it in your computations. Rather than work with a 6% conservative interest return, you should probably consider a Safe Withdrawal Rate (SWR) in the range of 2% of your total portfolio, to determine your income per year post retirement.

5. 2 more houses before you turn 40, is again quite impressive. You must be saving a large portion of your take home salary. Good for you.

6. Is your medical insurance, company provided? I have been struggling to find a inflation-indexed medical insurance. 5Lakh medical insurance today, will not be worth much in 5yrs at the rate at which medical costs are inflating. Do you know of any good medical insurance products that are inflation indexed?

7. What kind of rental returns are you getting on your houses? Rental returns are very poor here in Bangalore, and I find most home owners are counting on property appreciation, with the hope of being able to find a buyer at the end of 10-15 yrs for their apartments. Quite a bit of risk involved in this strategy in my opinion, particularly for apartments/flats.

Would be glad to hear more from you, and learn about your early retirement planning.

Hi desihopeful! Wish you a very happy and successful new year too! You have made some very relevant points. I will try to address each point at a time.

"1. Pune is a nice city. I am guessing you are in the IT field. Are you looking to retire in Pune?" We have not thought where do we want to retire. It may be Pune or a place less expensive than Pune. Current estimates are based on the assumption that we will retire in Pune.

"2. Being solely dependent on real estate sounds extremely risky." I agree. Please refer to my reply to walkinwood and provide your perspective.

"3. You mentioned no kids. If you plan to have kids someday, it might throw off your calculations by quite a bit." I agree. Currently we don't plan to have kids. If and when we do, early retirement might get pushed by 10 years or so.

"4. Inflation is the big X-factor in any early retirement financial plan, when it comes to India. I am not sure you are considering it in your computations. Rather than work with a 6% conservative interest return, you should probably consider a Safe Withdrawal Rate (SWR) in the range of 2% of your total portfolio, to determine your income per year post retirement." I don't think I understand this fully. Does 2% SWR = assets lasting for 50 years since 2% times 50 = 100%? "SWR" is an unfamiliar term. I will do some googling to understand SWR before I come back to you on this one.

"5. 2 more houses before you turn 40, is again quite impressive. You must be saving a large portion of your take home salary. Good for you." Thanks!
I'm keeping my fingers crossed!!

"6. Is your medical insurance, company provided? I have been struggling to find a inflation-indexed medical insurance. 5Lakh medical insurance today, will not be worth much in 5yrs at the rate at which medical costs are inflating. Do you know of any good medical insurance products that are inflation indexed?" - No. Medical insurance of INR 500K is what I pay for out of my pocket. Medical insurance from employer is over and above this. My insurance is not inflation indexed. I have not found any insurance company providing a higher insurance coverage than INR 500K.

"7. What kind of rental returns are you getting on your houses? Rental returns are very poor here in Bangalore, and I find most home owners are counting on property appreciation, with the hope of being able to find a buyer at the end of 10-15 yrs for their apartments. Quite a bit of risk involved in this strategy in my opinion, particularly for apartments/flats." Regarding the risk of not being able to finding a buyer, please refer to my reply to walkinwood. Net rental return in Pune is between 3.5 to 4.0%

 

[mask]

Thanks for the info

The manager at our office there is from Europe and he told me that he used a chauffeur driven car to get into work from where he lived in Goa, but that they did own a car and drove themselves when not in Mumbai. His wife was with him, but his 2 kids were back in Switzerland at college.

The locals used trains to get in and whenever I got into work at the start of the day and went to the restroom, it was usually full of guys putting on their ties etc.

It certainly sounds like you are from India - how did you come across this forum? I had assumed you were an American that had relocated.

Yes I am an Indian living and earning in India. I have been trying to plan my retirement for the last 6 months or so. Tumbled upon this forum while googling about early retirement.

 

[mask]

Your current expenses (in USD) of 1.4K x (1.08)^15 = 4.5K per month (54K per year) when you are 45, but what happens after that? Even if inflation is "only" 6% long-term, you will be earning a 0% real return on your retirement portfolio, so you will have to draw down your portfolio to keep pace with rising expenses. If I've done the arithmetic correctly, INR 40 million = 900K (USD), so you will draw down your retirement portfolio in 900K / 54K = 16.7 years, when you will only be 62.

The only assumption in your calculations is that my expenditure remains constant at INR 61.5K per month. Our current average monthly expenses are at least 1.5 to 2.0X the average expenditure of an average family of 4 in India.

Some of the easy to cut down expenses are Vacation, Shopping and Eating out which comes to INR 24K per month. It is also possible to cut down the remaining expenses by at least INR 5K per month. So I will definitely run out of money if we choose to live the 'Big American Dream' in our retirement. However, if we choose to live like an average Indian middle class family, we can make our assets last longer.

Also, we still have 2 more houses to fall back on. And worst case, I can continue to work at a managerial position instead of an executive level position for at least 10 yrs or so before retiring completely. By doing so, I can earn enough to pay for our expenses at the present level of lifestyle and let my assets grow at the assumed 6% for another 10 yrs before we start to withdraw from our savings and / or think of cutting down our expenses.

I look forward to your views on this.

 

[mask]

Hi, mask! How lucky you are to be in India, where I would imagine it is probably warm and summery right now, while the U.S. and Europe dig out from various snowstorms and blizzards!

Even here in New Orleans it was below freezing several nights last week, and I had to cover my more delicate plants for protection from the cold.

Hi W2R, Eat loads of snow food and stay warm!!! It is 50 degrees F here....but that's cold going by our standards....I know you would rome around in your shorts in 50 degrees F!!!!

 

[mask]

It may be tough to find people here who are at all familiar with investing in India. Good luck!

Thanks Martha. I'll keep my fingers crossed!!

 

[mask]

Hi desihopeful! Wish you a very happy and successful new year too! You have made some very relevant points. I will try to address each point at a time.

"1. Pune is a nice city. I am guessing you are in the IT field. Are you looking to retire in Pune?" We have not thought where do we want to retire. It may be Pune or a place less expensive than Pune. Current estimates are based on the assumption that we will retire in Pune.

"2. Being solely dependent on real estate sounds extremely risky." I agree. Please refer to my reply to walkinwood and provide your perspective.

"3. You mentioned no kids. If you plan to have kids someday, it might throw off your calculations by quite a bit." I agree. Currently we don't plan to have kids. If and when we do, early retirement might get pushed by 10 years or so.

"4. Inflation is the big X-factor in any early retirement financial plan, when it comes to India. I am not sure you are considering it in your computations. Rather than work with a 6% conservative interest return, you should probably consider a Safe Withdrawal Rate (SWR) in the range of 2% of your total portfolio, to determine your income per year post retirement." I don't think I understand this fully. Does 2% SWR = assets lasting for 50 years since 2% times 50 = 100%? "SWR" is an unfamiliar term. I will do some googling to understand SWR before I come back to you on this one.

"5. 2 more houses before you turn 40, is again quite impressive. You must be saving a large portion of your take home salary. Good for you." Thanks!
I'm keeping my fingers crossed!!

"6. Is your medical insurance, company provided? I have been struggling to find a inflation-indexed medical insurance. 5Lakh medical insurance today, will not be worth much in 5yrs at the rate at which medical costs are inflating. Do you know of any good medical insurance products that are inflation indexed?" - No. Medical insurance of INR 500K is what I pay for out of my pocket. Medical insurance from employer is over and above this. My insurance is not inflation indexed. I have not found any insurance company providing a higher insurance coverage than INR 500K.

"7. What kind of rental returns are you getting on your houses? Rental returns are very poor here in Bangalore, and I find most home owners are counting on property appreciation, with the hope of being able to find a buyer at the end of 10-15 yrs for their apartments. Quite a bit of risk involved in this strategy in my opinion, particularly for apartments/flats." Regarding the risk of not being able to finding a buyer, please refer to my reply to walkinwood. Net rental return in Pune is between 3.5 to 4.0%

I had missed your point on inflation. Google 'India economic outlook 2030'. This article projects inflation to be at 4% till year 2030. However, considering the current situation, it seems highly unlikely for India to bring inflation down to 4% and more so to sustain it at that level. So I have gone with 8% inflation.

I tried searching for inflation projections beyond 2030, didn't find anything.



Regarding SWR, I did some reading. Most articles recommend 4% SWR to make nest-egg last for 20-25 years. Bringing SWR to 2% will almost double the life of nest-egg, assuming other variables remain unchanged. Bottom line is that in order to maintain the pre-retirement standard of living, and to bring SWR down to 2%, I will have to either double my nest-egg or improve ROI!!



So, I re-did my projections/calculations and here's what my projections are based on:

1. We (DW & I) will have INR 40 million and 2 houses (conservatively about INR 7.5 million each) on our 45th birthday. So nest-egg starts growing starting our 45th birthday

2. Inflation assumed at 8% p.a. from now till 2081 i.e. till we turn 100


3. I will NOT retire literally at 46 but will retire from an always-run-after-money kind of lifestyle. In which case I plan to work at a managerial level for 10 years i.e. till we (DW & I) turn 56. By doing so, we can ensure that we don't have to touch our nest-egg for at least as long as I continue to work. Best part is that I will not have to work for more than 8 hours a day and 5 days a week and allow my nest-egg to grow at least @ 10% (I shall learn to invest in stock market if need be, I got 15 years to cross that bridge!)

4. Rental income continues to flow in from one of the two houses we would still have.

5. I retire completely on 56th birthday (year 2037)

6. We begin to draw from our nest-egg beginning 2037

7. Beginning 2037, we downgrade our lifestyle to bring our expenses down from a INR 61.5K per month to INR 40K per month (basically less shopping, cheaper vacations and no eating out at fine dinings )

8. All of the above is assuming that we continue to live in Pune which is one of the most expensive cities in India

Going by the above plan, we will be left with 2 houses and no cash when we will turn 99!!



Plan B includes:

1. Moving to a cheaper city at age 56

2. If things still don't work out, we will still have 2 more houses to fall back upon i.e. by either selling the houses or reverse mortgaging them.

It would be keen to know your thoughts on this!!