How do you get SIP amount for complete portfolio: Part 5
Walk-through: Get SIP amount for all goals together
Walk-through: Get SIP amount for all goals together
We have already covered
We will now combine all of these together to cover all goals together in the family.
Typically for married couples, this is the life expectancy of the younger spouse and could be as 100 years nowadays. We need to adjust the duration of the retirement accordingly. The longer the duration (assumed 40 years in the Excel example), the more savings are needed every month.
Here each year of retirement is modelled as a separate goal. Naturally, once the retirement period ends, there is no money expected to be left for any heirs. If that is needed, please create a separate goal for that using this method.
One of the important assumptions will be the expenses in the first year of retirement (22 years from now in the example) assuming the retirement starts immediately. This needs to include expenses like housing, health insurance and travel and will assume no income. If pension or other income is present, then the expenses will be assumed beyond this income.
Related:
Inflation: the impact on your goals and how to choose assets that beat it
The model deals with a 36-year-old salaried individual with retirement at age 58 (22 years from now) who is also targeting retiring 5 years earlier. We will assume a figure for annual expenses if traditional retirement happened today (5 lakhs in the example), model it forward by 22 years of inflation (at 7%) and then use the figure to save for each year of early retirement.
These calculations are explained in this Google Sheets workbook.
A very important part of planning for a long term goal is increasing the monthly SIP amount as income increases. In the example, the increase is assumed to be 10%/year. The model handles rebalancing automatically by showing the amounts to be Invested and Redeemed and over time reduces the amount of equity exposure for each goal so that risk can be managed.
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This post titled How do you get SIP amount for complete portfolio: Part 5 first appeared on 07 Jun 2021 at https://arthgyaan.com