I was looking into setting up my finances for early retirement and was looking for literature in the Indian context. Freefincal's blog seemed to be widely recommended, both here and on /r/FIREindia but I was shocked to see how bad it is.
The ebook (which seems to be a collation of blogs on this topic) is https://freefincal.com/wp-content/uploads/2016/05/How-to-retire-early-in-India.pdf. I noticed the following
The ebook (which seems to be a collation of blogs on this topic) is https://freefincal.com/wp-content/uploads/2016/05/How-to-retire-early-in-India.pdf. I noticed the following
- He discusses four strategies while assuming that both the inflation rate and portfolio returns is constant. While you can simulate a constant inflation rate by increasing your withdrawals by a fixed rate every year instead of the actual inflation rate, there is no way your portfolio will return a constant rate every year. This makes all his analysis, sheets and conclusions completely useless!
- Even if we ignore that portfolio returns can never be constant, he claims that you need a 3.1% real rate of return for a 3% constant withdrawal rate strategy to work at 8% inflation. However, his own Excel calculations show that the portfolio size increases 31x! (~100% capital preservation after adjusting for 8% inflation). While it may be his own personal goal to preserve his entire portfolio value to bequest to his children or charity, other early retires may not care about capital preservation. Assuming a 25% capital preservation target (to have a buffer), the real return required drops to ~2% so claiming that 3.1% is need is misleading.
- He also claims that more early you retire, the lower the corpus you need. Thats astounding! How? Basically, after pages and pages of talking about inflation - he doesn’t adjust the retirement amounts for inflation. His “Dagwood” at 50 needs 6.7 crore! His “Dagwood” at 60 needs 11.8 crore (or 5.47crore in Dagwood-50 rupees!). His “Dagwood” at 65 needs 14.8 crore (or 4.67crore in Dagwood-50 rupees!). I got a good laugh reading this one!
- He seems to misunderstand the concept of SWR completely. He seems to consider it as withdrawing a fixed percentage of your portfolio every year (i.e. a "constant withdrawal rate strategy") when its actually what he described in the first strategy (i.e. "drawdown strategy”). You use the SWR to determine what your first withdrawal amount will be and then make inflation adjustments for every subsequent withdrawal.