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Retire Rich Toolkit
Retire Rich Toolkit
TOOLKIT
The Must-Have Resouces You Need To Start
Your Retirement Plan Right Now
Common Sense Living’s
RETIRE Rich
Disclaimer: Common Sense Living Private Limited (hereinafter referred as ‘Common Sense’) is an initiative that brings
you straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. Content and information is
sourced from Quantum Information Services Pvt. Ltd (hereinafter referred as ‘PersonalFN’), an associate of Common
Sense. Tools/calculators (‘Calculators’) are sourced and developed by PersonalFN. The calculators are based on certain
assumptions including hypothetical data input by the subscriber. These calculators are provided to CSL subscribers as
a part of their subscription to “Retire Rich” service. All the tables in this guide are for illustration purposes only and
sourced from PersonalFN unless otherwise stated. Information is provided on ‘As Is’ and to be used at one’s own risk.
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In the Retire Rich guide we walked you through the essential steps to plan
for your dream retirement, explaining to you at each step in great detail
exactly what you need to know about retirement planning.
Here we give you shortcuts through the guide. This planner takes you
through the steps briefly, helping you to plan as you go, giving you exercises
to complete, numbers to calculate.
Grab a calculator and your bank statements to sit down and fill in the
worksheets, and as you work your way through this planner, with each step
you will have more clarity on where you are in your retirement planning
process and what you need to do from now on.
To illustrate some of the ideas we are talking about, we have also included
three case studies that will help you visualize how you should react to your
own financial situation.
Finally, we have linked the five financial calculators that will make your life
just so much easier at the end.
By the time you are done with your seven steps you will know:
After you plan, you need to make some financial decisions that can lead up
to the retirement of your dreams.
What kind of life do you want to live today? Do you want to scrimp and save
to plan for tomorrow, or do you want to enjoy both today and tomorrow?
To enjoy both today and tomorrow, you need to do two things – live a richer
life today without spending more, and make more money today to put away
for tomorrow.
To help you do both of these we are also giving you two more priceless tools:
So scroll down and take your first step now... good luck.
Anisa Virji,
Managing Editor, Common Sense Living
Calculators 35
If you hear yourself saying “I have enough time to go before I retire, so why rush?”
stop now.
We all tend to procrastinate – it is not just you. Our decisions are often made by
our need for instant gratification (sitting on a couch today) over delayed rewards (a
happy retirement somewhere in the future).
But we can’t say this enough: Starting early and ensuring that you have enough
time on your side is the key to successful retirement planning.
Date: _______________________________
Time: _______________________________
Place: _______________________________
You might think ‘I am responsible for my family’s financial future, I should handle this
hassle myself.’
That is a mistake. Your partner has as much role to play in your family’s future,
whether they are an earner or not.
So get them on board – carve out dedicated time when the two of you (and others
from your family) can get together and discuss the questions in the next step.
Date: _______________________________
Time: _______________________________
Place: _______________________________
In step 2 of the guide, we outlined ten questions to help you figure out where you
are financially and the explanation behind them. In the worksheet below, we’re
asking you to fill in your own answers so you can personalise it to get a better sense
of what your financial goals are. In step 1 you hopefully set a planning date with
your partner, and this is where the two (or more) of you can start together. You do
not need to answer all these at one go, later worksheets will help you with some of
these questions.
6. How much should I allocate for my health care and medical needs?
(Note: Another hard fact to remember, age brings greater need for medical attention)
8. What do I own?
Assets Liabilities
Self-Occupied House N.A. N.A.
Second House
Housing Loan
Stocks / Mutual Funds
Fixed Deposits / Bonds / PPF
Credit Card Dues
Gold Bars / Jewellery
Borrowed from Friends
Ancestral Property / Land
Unless you know where you are headed, it is very difficult to get there.
The absolute most important rule for retirement planning – know your magic
number!
Your Magic Number is how much you need to replace your active income and pay
for your expenses... after you’ve quit your 9-5 job. Below are Mark Ford’s 5 numbers
to calculate your number.
1. LIFESTYLE BURN RATE (LBR): how much money your current lifestyle requires
annually:
LBR = ___________________________________________
2. RETIREMENT LIFESTYLE BURN RATE (RLBR): Adjust your LBR to account for
any changes in spending patterns that will be a part of your retirement lifestyle, and
add annual inflation (can assume at 8% per year)
RLBR = ___________________________________________
NRLBR = ___________________________________________
5. MAGIC NUMBER: Divide your NRLBR by the expected Rate of Return to get
your magic number. Once you amass this number, you can invest it at the expected
rate, and live your dream retirement!
Fill in the first column with what you are now spending annually to live. Then fill
in the inflation multiplier (you can find it in Table 2 on the next page).
Multiplying column 1 by column 2 will give you an idea of the income you will
need during your first year of retirement.
Automobile and
Rs Rs
transportation
Food Rs Rs
Clothing Rs Rs
Education Rs Rs
Medical and health Rs Rs
Personal needs, including
Rs Rs
entertainment
Donations Rs Rs
Taxes and Insurance Rs Rs
Irregular expenses (i.e.
Rs Rs
gifts, holiday spending, etc.)
Savings, investments Rs Rs
ANNUAL TOTAL Rs Rs
2. Spend wisely.
We don’t recommend that you scrimp and scrounge to achieve your financial goals
(for more information on that, read our Retire Rich Life book) but we do recommend
you be wise when it comes to what you choose to spend your money on. Another
thing you must discuss with your family and partner on a regular basis.
Here, we’ve given you several tables for you to keep track of your cash inflows and
outflows to help you get a better sense of where your money is going and how to
economize sensibly.
Cash Inflows
Total Income
Cash Outflows
Estimated Expenses
Basic Needs
Essentials
Investments
EMI’s
Luxuries
Total Expenses
Luxuries 5%
Your risk profile reflects your risk tolerance and risk appetite. While we have
extensively defined both for you and outlined steps to analyse your risk profile, we
also love this great little trick.
To discover your own personal risk profile in a fraction of a second, play this simple
game.
Imagine...
You enter a bet with a friend. Your friend will flip a coin.
- And if you choose not to flip the coin, your friend will simply give you Rs.
250 and the game is over.
The expected outcome in each of these scenarios is an average of Rs. 250. But
depending on which option you choose, you know what broad type of investor you
can be.
If you choose not to play the game, and to just take the Rs. 250, or would take
even less than Rs. 250 as long as there was no risk attached; you are risk averse
or conservative. Seeing your equity portfolio fall is most likely going to make you
uncomfortable.
If you would rather take the gamble, and in fact would take it even for any amount
more than Rs. 250; you are a risk seeker or aggressive.
Once you know your risk profile, you can go on to the next step and figure out what
investment strategy suits you.
Wise old adage – the wisest where investments are concerned – don’t put all your
eggs in one basket. Invest in different asset classes when you are building your
retirement portfolio, to safeguard the wealth you are building.
The different asset classes (equity, debt, gold) have different attributes which will
help you to maintain the required balance in your retirement portfolio. Higher risk
equals higher return, and the converse is true as well.
The below graph depicts the correlation of asset classes with risk and return.
Invest in each asset class, based upon your risk appetite and the number of years
Short-Term Rule: If your retirement goal is 3 to 5 years away, try and avoid expos-
ing your money to equity market risk, as far as possible. You should have predom-
inant exposure towards fixed income / debt instruments and liquid funds to keep
the corpus safe.
Medium-Term Rule: If you have a medium term horizon for your goals, i.e. if your
goal is 5 to 10 years away, you can invest partly in equity, debt and gold. You can opt
for up to 60% exposure to equity, 30% to debt and upto 10% in gold.
Long-Term Rule: If your goals are long term (i.e. more than 10 years away), you can
opt for an increased equity exposure of 70% to 80%, with around 10% exposure to
gold and upto 20% exposure in debt.
So, in this worksheet we’re giving you an empty pie chart for you to fill in the
percentage of Equity, Debt, and Gold that you currently have, and another one for
you to outline where you want to be. This exercise is so you know how far or how
near you are to your financial goals for retirement. The last chapter of the Retire
Rich guide will help you identify your ideal portfolio.
___% ___%
As you are earning and have financial goals in mind which include your family, it
is imperative that you have optimal life insurance cover, because an event such
as death could impact your family finances and subsequently affect your financial
goals.
You also need optimal health insurance cover in today’s stressful life which may have
consequences on health. Also you grow older, the possibility of physical ailments
naturally increases. Plan for this well, so your retirement plan remains unaffected.
And our guide to insurance can help answer your insurance questions.
Co-payment: _____________________________________
Exclusions: _____________________________________
Premium: _____________________________________
In the business of financial planning we often meet people who do not have an even
flow of income and whose cash flows are erratic.
When Shyam came to us with an interesting problem where his monthly expenses
were more than his monthly fixed income, and yet his annual income could easily
cover in annual expenses, we decided to illustrate his story here to help you un-
derstand what to do if you experience a similar cash flow pattern.
Personal Details
Name Shyam (Name changed to protect privacy)
Age 35 years
Marital Status Married
Income (Fixed) Rs 75,000 per month.
Income (Variable) Rs 400,000 in September and March every year.
Liabilities Outstanding Personal Loan of Rs 2.43 lacs @ 15% p.a.
Expenses Rs 90,000 per month (including EMI of Rs 10,000 p.m.)
Cash in Bank Rs 250,000 (approx.)
Even though his annual salary of Rs 17 lacs was sufficient to meet his annual
expenses of Rs 10.80 lacs, on a monthly basis he was still left with a deficit of Rs
15,000 (Rs 75,000 income - Rs 90,000 Expenses) to meet his regular expenses. He
wanted to know how to manage his uneven cash flows and also start investing for
his financial goals.
We advised him to take three crucial steps to streamline his financial situation:
Inflows Outflows
2. The personal loan on which he was paying a hefty interest rate of 15% per
annum can be paid off. His monthly expenses will be reduced to Rs 80,000
per month from October 2014.
We recently conducted a cash flow awareness exercise for one of our clients, Suresh
Shah (name changed to protect privacy). It was a simple exercise but we found that
it illustrated clearly some of the misconceptions people hold about their cash flows.
Before the exercise, Mr. Shah was under the impression that the majority of his
expenses were household, fuel and utility related. After tracking his expenses dil-
igently for a month, he was surprised to learn that he was spending nearly 25%
(roughly Rs 35,000 every month) of his monthly take-home salary on family din-
ners at fancy restaurants, gifts and other such entertainment.
This high level of discretionary expenditure left him with a comparatively low in-
vestible surplus each month, so he could only contribute Rs 15,000 per month to
investments towards his family’s life goals.
He had no idea that most of this money could be saved – he assumed they were
necessary to keep the lifestyle his family was living.
On a daily basis, he recorded his expense figures and asked his spouse to do the
same. He implemented several savings strategies including taking advantage of
sales and deals, postponing non-essential purchases, and so forth.
In just 3 months, after diligent tracking and cutting back, Mr. Shah was able to bring
Now he is able to invest Rs. 35,000 each month towards his family’s life goals i.e.
children’s educations, a new car next year and his own retirement.
This case study illustrates how your own asset allocation exercise should work.
Let’s take the case of Ram Mohan (name changed to protect privacy) below to
find a suitable asset allocation for his financial goal:
Personal Details
35 year old Ram Mohan wanted to plan for his retirement with his spouse at the
age of 60 years. He had a decent monthly income of Rs 130,000 and his expenses
were just Rs 50,000 per month. So he could easily have a monthly surplus of Rs
80,000. Moreover, he had a long term time horizon of 25 years for his retirement
goal. Now let us have a look at his assets.
Assets
First, you assess your assets and liabilities. In Ram Mohan’s case he has a huge
advantage in that he has no liabilities. His biggest asset is the flat he lives in worth
Rs 1 crore, which he has inherited from his father. Because of his conservative na-
ture, he was holding his second big investment of Rs 50 lacs in fixed deposits. His
other small investments were Equity Mutual Funds, PPF and Gold Mutual Funds.
He also maintained Rs 3 lacs as cash in bank for any unforeseen contingencies.
Then, you take a look at how your assets are currently allocated. Let us take a
close look at Ram Mohan’s current Asset Allocation...
To understand what you will need to reach your goals, you then need to calculate
your retirement number, as we did for Ram Mohan below.
Finally, you need to assess your asset allocation to see if they are appropriate to
meet your goals. When we assessed Ram Mohan’s asset allocation, we found...
Now, figure out what needs to change. In Ram Mohan’s case, his investments
need to be redistributed...
Recommended Asset Allocation
After taking into consideration his time horizon, risk appetite and the importance
of his retirement goal, we recommended an asset allocation of 75% equity, 20%
debt and 5% in gold. This allocation would help him comfortably achieve his re-
tirement goal. Let us see how.
The Conclusion
Increasing the investment amount would not have been possible for. Ram Mohan
as his income was limited. So without increasing his investment amount, he could
achieve his retirement corpus by just changing his asset allocation.
In your own case, you might have thought you can achieve your financial goals
only by increasing your investment. That is not necessarily the case. Just changing
your asset allocation can also help a great deal.
Hopefully Ram Mohan’s case has helped you to understand the importance of as-
set allocation and how it can help you to achieve your financial goals by investing
the same amount which you might be currently investing. Moreover Ram Mohan
had a long term time horizon which helped him increase his exposure towards
risky assets. This also indicates that starting early and planning prudently and in a
timely manner may help one achieve his key life goals.
35 | Calculators