You can read an overview of the plan here. Part 1 covered how we planed our retirement date and open questions around location, health and children expenses. This is Part 2 of our early retirement plan. I will discuss the thought process behind defining our ‘retirement number’ in this post. Part 3 will cover how we plan to invest our savings to reach this number.
We know nothing! Now that this has been established in Part 1, I want to share how we decide our retirement number.
Home is the Best
For now, we know that we don’t want to live in an urban area. This should save us cost both in terms of housing and monthly living expenses. We would have to forego some benefits like better shopping and entertainment options like movies. But we hope to settle down near a beach. This should give us the quality of life that we want. Currently we are looking to settle somewhere in the Raigad or Sawantwadi regions of Maharashtra – loads of serene beaches to choose from.
We are crystal clear that we do not want to rent. Considering the house type and quality available in rural areas might not suit our needs/wants, we might have to buy land and build. We are OK with this. The Mrs. has very few wants from the house. It should have 3/4 bedrooms to accommodate visiting family and friends. It should have space for a vegetable garden and should have a very short commute to the beach.
I on the other hand want a lot more open space with the house. An acre of land would suit my wants more. But even in rural areas, land closer to the beaches is not as cheap as you might expect. I might have to trim down my expectations since the nearness to the beach is non-negotiable!
We have not had any experience with home ownership till now. So I will be talking to both our parents to figure out the cost of home ownership – insurance, taxes, maintenance, repairs and so on.
Our monthly living expenses are lower than the Indian average – if we exclude vacations. We buy very less processed food and eat out less than once a week at cheaper options. Our average meal for 2 is < 1000INR and we out once in 2 weeks. The places we are looking to settle in are in the southern part of India and the weather is generally humid or warm. Winters are very mild and we will not need any heating. We will need air conditioning for about 3 months between mid-April to mid-July. Water is very cheap in India and hopefully it continues to be so. Cooking gas is cheap in Mumbai, but we expect this to go up since we will need to buy cylinders – this increase will be minor in the overall monthly expenses.
We currently have 1 term insurance plan each. This is something I am currently thinking we will continue till we are 55. We will need to add in health insurance and projected healthcare expenses.
Our current hobbies and interests are books and travelling. We travel twice a year – 1 short vacation over a long weekend and 1 long vacation for a week or so. I expect that we will travel to some of the locations (the high cost ones) on our bucket list before retirement. But even so, we will continue to travel for at least 15 years after retirement. Whether the expenses will be similar to current or not is something we will have to confirm as we move closer to retirement. We will also figure out if there are any new hobbies (music) or interests we might want to indulge in and plan expenses accordingly.
As mentioned in the earlier post, all expenses related to children will need to be added in to your current expenses.
We already have a car that we bought new around 2 years back. We use it very less – only on out station trips and dinners or movies. So I expect this to last us for a while. Though I think we will end up buying a new car closer to retirement. Assuming the life of the car as 10 years, that means we might end up changing cars twice after retirement.
Since the Indian economy is growing at a good pace, the inflation is higher compared to US or other developed countries. The good news is that for past 1.5 years or so the inflation rate has been dropping and has been <4.5% most of the time. I believe this is because crude oil prices have dropped significantly. Even though this scenario is not expected to change any time soon, I want to be conservative. I will be considering 6% as rate of inflation in my calculation and will stress test my number with a high of 7.5%. These rates will apply for both pre and post retirement expense calculations.
Further, the normal reported inflation is not the same across all spending categories. Health care for example increases at a faster rate. (For other categories refer to RBI information here.) So it will be impossible to be accurate while accounting for this. I hope the stress test I mentioned above will be enough to take care of this.
Earning during Retirement
Ideally we would prefer not to work to earn money after retirement and hence I will not be including this in our calculations. However, we are not completely discounting some form of work during retirement. As long it is work that makes us happy. Hopefully by then we will have better internet and phone connectivity in the rural areas, that will allow us to work from home. Maybe free-lancing or doing something on our own. We do not have any ideas that we are currently running on the side. So this is a big maybe for now.