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Do you have enough money in your account so that you can safely retire how can you say that i have enough money and i am ready to retire this is a very complex question many people do not have an answer for this particular question in this video i will try to argue and see when can you say i have sufficient enough money and i can safely retire this is dr chandra

Khan but investment consultant and financial planner for nri money clinic nri money clinic no hype just the right advice retirement years otherwise known as the golden years are the best years of a person’s life everybody wants to enjoy their golden years but if you look at the statistics over 90 percent of the people who retire from work they will never

Have their golden years what’s the reason the reason is under preparedness for retirement years they do not know how long they are going to leave they do not know how much money they have they do not know how much it is going to cost during the retirement years the net result is they will never have golden years if that’s the case if i want to retire today how

Do i feel safe that i have enough money and i will never run the risk of outliving the money that i have let’s try to find an answer for this particular problem before we check whether you have enough money for your retirement years you should have completed a few more things prior to that number one before you retire you should have finished all responsibilities

Towards your children if your children are still studying when you retire they need money if you still have emis to pay for your purchase of house that’s an unfinished responsibility it’s a good idea to finish all your responsibilities towards these kind of an expenses before you retire unfortunately if you have not finished this responsibility what you can do is

Earmark a separate account and the required amount of money keep it separately don’t mix it with your retirement funds so that when you retire the requirement of funds which are for these particular causes are available in a separate account the second thing that you should do before you retire to make sure that you have enough money is you should have purchased a

Good health insurance plan when i say good health insurance plan don’t buy a plan for one lakh two lakh rupees buy it for sufficiently large enough size maybe 10 lakhs maybe 15 lakhs maybe 25 lakh as per your affordability health expenses are on the rise so you need to be having sufficiently large enough health insurance cover before you retire don’t wait till

You retire to buy a health insurance policy it may or may not be available for you it’s a good idea that you buy a health insurance cover at least two to three years before you retire now let me assume that you have finished all your responsibilities towards your children and loans and other things and you have a good health insurance policy with you now let me

Check how much money you need or how we can say you have enough of assets or cash flow to suffice for retirement years let me check it in two case scenarios scenario number one i assume your retirement income will come from only rental income that you may get from the property now let’s say that you need a lack of rupee to run your show during your retirement

Years the entire set of amount that you need will come from rental income in that case it is safe to assume that you have enough money for your retirement years you may ask me a question what about inflation what can go wrong yes you have a point in the event of inflation the rentals will automatically rise so the rental real estate is inflation-proof so if

All the money that you need for your livelihood comes from rental real estate it is safe to assume that you have sufficient enough money for your retirement years now having only real estate is it a foolproof strategy i can definitely say it’s not a foolproof strategy but it is nearly foolproof if you run short of money for your livelihood the asset price of

That real estate is also available for your use at some point of time in future instead of getting rentals from the property you can decide to sell the property get that asset value put it in a bank or invest somewhere else and derive the required amount of money for your livelihood during your retirement years there are spoilers in this scenario what can spoil

The game there are many things which can spoil the game one of the things is if all the money that you need for your living comes from one single property then the risk is that if you don’t find a tenant or if there is some problem because of which you don’t get rentals you could be getting stuck instead of this if you plan well and you have multiple properties

And the rents come from multiple sources then your chances of managing your retirement cash needs are far better you can sell one of the properties and get some cash value or all the properties will not be rented out there could be one property or two property which may be having dry periods so it could be still manageable so it is safe to assume that when your

Rental income is sufficient for your livelihood during your retirement years it’s more or less certain that you will not have difficulty to find funds to fund your retirement years now let me look at scenario 2. again i will assume that you have finished all your responsibilities towards your children and loans and everything and you have a good health insurance

Policy now your retirement income comes from your financial assets that means you have saved money the money could have been parked in the bonds or the bank fds or a mutual fund portfolio or a pension company insurance company whatever it is your total assets are financial assets in such a case how can we say that you have enough money for your retirement let’s

Do some calculations here now let me assume that you need a lack of rupee every month this is your living expenses now in 12 months that is in one year the total amount of money that you need is 1 lakh into 12 months is 12 lakhs now i’ll give you a formula here if you need 12 lakhs per annum multiply it by a factor of 25 12 lakhs multiplied by 25 this gives me a

Figure of three crores if you say i have three crores of rupees and your monthly cash needs is one lakh you can safely say that you have enough money to last for your retirement yes the health insurance premium that you are going to pay will be paid from this one lakh all the expenses that you have planned for should come from living expenses in that case three

Crores of rupees is sufficient enough for you provided what you need is one lakh if your need is more than one lakh multiply that figure by 25 if your needs are lesser again multiplied by 25 arrive at the amount of money that you need how did i arrive at this figure of multiplying it by 25 that is where a formula comes to my mind it is called formula four now

If you have a certain amount of assets calculate what is the four percent of that asset represent for example if you have one lakh rupee four percent of one lakh is four lakhs four percent of three crores is 12 lakhs so the drawdown rate or the safe drawdown rate can be predicted to be about four percent this applies both for persons who live in india for

People who live outside of india where you have very less interest rate also still it is safe to assume four percent drawdown rate is sufficient enough for your retirement years now let us see how this four percent rule has come into existence let us try to see whether it is a valid argument what can go wrong in what circumstances it will not fit in under

What circumstances it fits very very well now let us look at the indian case scenario now the average bank rate if i consider it’s around six percent so you could be keeping your money in the bank or an insurance company pension company mutual fund portfolio whatever it could be you can draw about four percent of that money if you are making six percent on your

Investment portfolio you can draw four percent now the remaining two percent what happens one of the two things can happen one you could be paying the taxes and that tax could be that remaining two percent the other possibility could be out of the six percent four percent you are consuming and if you are in a non-tax bracket this two percent may be adding to your

Capital itself nevertheless four percent draw down rate is very very safe now let us check this four percent rule in another case scenario let me assume that your investment portfolio does not earn any rate of return that means you are going to earn zero percent return on your investment in that case what happens to the four percent rule in my assumption even if

Your investment returns are zero percent still this four percent rule is fairly safe to assume how do i say this now let’s imagine that you retire at the age of 60 and your investment portfolio just doesn’t grow over 25 years it’s purely hypothetical it will not happen in that case what happens if you draw 4 percent per year that means in the next 25 years you

Will exhaust all your money that means to say if you retire at 60 years of age your investment portfolio does not grow at all even by a percent the cash that you have will last for next 25 years the average life expectancy is around 75 years for most people so this four percent rule can hold good even in zero return environment now if you look at the case of

Developed countries there you still have zero percent interest rate in some countries there are negative interest rate but even there it’s definitely possible to earn some return on retirement corpus people are holding likewise in developed countries be it in europe uk canada usa i am not very familiar with the circumstances there but there is also governmental

Support so if you calculate and you calculate the total amount of money and apply four percent rule and if the four percent of the financial assets that you have if that is sufficient for your livelihood then you can say you have enough money to last during your retirement years now in all these calculation what happened to inflation what happened to depletion

Of purchase power of money because of inflation now if your inflation is high like in case of india or emerging markets then your interest rates are higher so when you’re drawing four percent your interest rates are more than four percent that means the excess money that you have will be adding to your capital and over the years your drawdown rate even at four

Percent rule could be increasing let us say that you have a crore of rupee if you are adding two lakhs back into your capital that means next year your capital could be a crore and two lakhs a four percent of a crore and two lakhs will be higher than the amount that you are drawing that means you are taking care of inflation to a certain extent in case of developed

World inflation is negligible so even then it affects but still inflation will be taken care of in such a low inflationary environment let me add a word of caution here this four percent rule is not an absolute science i can’t say for sure that under every circumstance it holds good there can be spoilers inflation can be one spoiler tomorrow you may lose money

Because one of the bank would have collapsed or you have done a wrong investment and things can go wrong so don’t take this four percent rule as a sacrosanct just take it as a thumb rule just a general guidelines to see whether you have sufficient enough money the best rule to follow which i always follow is more the better if you think you need a lack of rupee

Every month it is better if you have two lacks of cash flow every month the excess money that you have as a cash flow can add back to your capital it can add as a cushion during your retirement years likewise this four percent rule holds good very well if you have a large amount of money if you think this four percent rule meets your requirement when you retire

And if you are confident about it then it is fine but what this four percent rule says that i do not have enough amount of money to retire then you can be up for root shocks because if you say i have one crore and i need 10 lakhs every year that means every year you are short by about six lakh rupees four percent drawdown rate from one crore gives you four lakhs

You are short of about six lakhs either you have to cut down on your living standards or you will be forced to deplete your capital which means to say at some point of time in future you run the risk of outliving your money so if you have lesser corpus this four percent rule may not work in your favor but if you have enough or enough and more four percent rule

Pretty well works for you there is one more thing that i would like to tell here whether you have sufficient enough money whether you have more than sufficient enough money or if you have less than the required amount of money one thing you should try to do that thing is from the day you retire till you’re 75 years of age try to make sure that you do not deplete

Your capital amount try to maintain the capital at its level or try to grow it a little bit more after 75 years of age don’t hesitate to deplete your capital slowly just in case if you do not have sufficient enough cash flow because you didn’t have sufficient enough money in the first place or because of inflation the amount of cash flow you are getting is not

Sufficient apart from the cash flow you also have to dip into your capital it’s not possible for everyone to say i have run out of my bank balance this is the time i should leave the world that will never happen one of the things will happen you will outlive your money which means to say you don’t have enough money to leave you will be dependent on the state or a

Friends or relatives or your children or you leave behind some money for generation next this is what going to happen it’s perfectly not possible for anyone to calibrate their life to say that i have exhausted money let me leave this world dear viewers if you think you need professional assistance to design a retirement income strategy for yourself you can make

Best use of our services i have shown the whatsapp number here on the screens from any part of the world you can send us a whatsapp message and request for professional assistance either myself or one of our team members will help you to design a good retirement strategy for yourself feel free to contact us anytime dear viewers if i have given some inputs for

You to check whether you are ready to retire or not whether you have enough money to retire safely or not please like this video if you are a person who is watching this channel for the first time or if you are yet to subscribe for this channel please hit the subscribe button and press the bell icon don’t forget to share this video with your friends and relatives

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Transcribed from video

How Do You Say You Have Enough Money To Retire ? By NRI Money Clinic