In this edition of the reader story, we meet a 28-year-old who has created an elaborate retirement strategy to navigate the stormy waters of the IT industry.
About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers. Some of the previous editions are linked at the bottom of this article. You can also access the full reader story archive.
Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate multiple solutions to the money management puzzle and empathise with diverse views. Articles are typically not checked for grammar unless necessary to convey the right meaning to preserve the tone and emotions of the writers.
If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.
Please note: We welcome such articles from young earners who have just started investing. See, for example, this piece by a 29-year-old: How I track financial goals without worrying about returns. We have also started a new “mutual fund success stories” series. This is the first edition: How mutual funds helped me reach financial independence.
I want to share my financial planning journey. I’m 28 yrs of age, working in a mid-sized corporate (IT – Services) company as a Software Developer. I started my career six years back in 2017 with a miniscule package of 2 LPA (14K/m in-hand) in a product-based company, worked there for four years to gain knowledge in my tech stack and made two back-to-back job switches in the last two years to bump my salary to 23 LPA (1.3L/m in-hand). Now, my skill set (React & Angular) has some good demand in the job market as of now (but not sure about the future). So, I would assume that my salary has peaked at this point and will stay at the same level or at least closer for the next 10-12 years before going down drastically. Yes, we need to update and adapt to the changes. But that will only ensure job safety and not guarantee the same salary levels. I got married last year and have a newborn daughter now.
I have one-year expenses (& 2 years of insurance premiums & school fees required) as an emergency corpus – 8L (6L in FDs, 1L each in PPFAS Liquid Fund and SBI Savings Fund)
I have my Max Life-Term Insurance of 25L (I felt that is enough as my wife is also working in a corporate) and Star Comprehensive Health Insurance of 5L for myself and my family and the cover provided by my company. Also, I am planning to take a Super top-up after five years.
I tried out my retirement planning in Excel with 6% inflation, assumed returns for the first few years, and gradually took it down further. I can clearly see that early retirement is not possible. Also, I can’t deny the harsh reality of the IT industry, where forced retirement is a clear possibility. So, I came up with a hybrid approach of making sure I accumulate the retirement corpus before the point of forced exit and disruption in the salary levels (assuming it to be 2035) and try to find at least some kind of a low-paying job (with PF contributions) or a source of income without touching the corpus till I reach 60. Please find the Retirement corpus accumulation table below
(Note: The Savings Amount includes the PF contributions [= employee + employer – pension]. And only PF is considered post-2035. Also, the drop in the savings amount in 2023,24 in the table is considering the recession.)
So, the accumulated corpus is 4.1 Crores at 60, lasting 22 years (approx). Before jumping into corpus spending. Let us look at the current asset allocation and corpus accumulated on July 2023.
I have the following Equity & Debt MFs –
- HDFC Developed World Index Fund – 1.15L
- ICICI Global Advantage Fund – 90K
- DSP Tax Saver Fund – 43K
- Parag Parikh Tax Saver Fund – 57K
- HDFC Money Market Fund – 1L
In the future, I plan to replace both the Tax savers with a simple HDFC Nifty Index fund, as the Old Tax regime doesn’t work for me anymore after the recent changes. Also planning to add SBI Magnum Gilt Fund. In the long term. I don’t want to deal with too many AMCs and plan to shrink to just a couple of AMCs (HDFC & SBI) with good online support (App & website). Yes, the equity allocation is slightly low.
It has been diversified globally to reduce risk (in the long term) as I had to deal with the aversion of my spouse towards the stock market (a story of a relative losing everything in stock trading). I had to explain the differences and the need for equity and everything somehow to take the equity allocation to this 33%. I made a few mistakes at the beginning of this journey, like buying Gold at its peak in Sept 2021, getting into NPS (I will get out from NPS soon once eligible), etc. Hoping not to repeat them here or in other portfolios.
Coming to the corpus spending part, I have assumed a monthly expense of 25k per month (I will inherit an apartment in the future, so I didn’t consider my current rent during retirement), 5% inflation and a 0.5% return more than the inflation. Please find the table below.
Yes, it doesn’t look too good, as it only covers up to 82 yrs. But that’s the maximum I can make it with so many uncertainties and as I have to deal with other goals such as my child’s education, marriage, etc. (which is even more important), which I will discuss in a different article. It appears there is a possibility of some minimal level of financial dependency on my child during retirement. But if things go as per plan, I will have at least some level of security.
Reader stories published earlier:
As regular readers may know, we publish a personal financial audit each December – this is the 2020 edition: How my retirement portfolio performed in 2020. We asked regular readers to share how they review their investments and track financial goals.
These published audits have had a compounding effect on readers. If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.
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