Walk-through: Get SIP amount for all goals together

We have already covered

• how and why to set a goal
• how to get asset allocation for a single goal
• how to get SIP amount for a single goal
• how to get SIP amount for a goal with multiple payments
• how to get SIP amount for traditional retirement
• how to get SIP amount for early retirement

We will now combine all of these together to cover all goals together in the family.

📚 Table of Contents

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• Assumptions made for calculations
  • Length of retirement
  • Expenses estimation and inflation rate
  • How to use the sheet
  • Increasing SIP every year
• After one year of running the SIP
• A note on having the pre-requisites in place
• All posts in this series

Assumptions made for calculations

• when does retirement start
• what is the rate at which the cost of goods and services increase with time i.e. inflation rate
• how long does the retirement corpus last
• what is the annual expenses in the first year of retirement if retirement happened today. Estimation of the expenses in retirement is covered in more detail here
• each cash requirement in the future is modelled as a single goal with its own asset allocation and rebalancing plan. This is not a unified portfolio
• risk profile is assumed the same for all goals: this is reflected in having the same asset allocation and rebalancing plan for all goals

Length of retirement

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.

Expenses estimation and inflation rate

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.

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.

How to use the sheet

• All figures in red are assumptions and can be modified as per requirement
• Allocate the corpus figures for all goals in column I (this is the total amount of investments you have)
• Enter the current corpus figures in the Current asset allocation section for equity holdings and cash in the bank in savings / FD
• Ensure that you have enough term insurance. The sheet shows you the minimum coverage amount keeping in mind the present value of goals yet to be saved and lifestyle expenses based on retirement levels for the period income will be present

Increasing SIP every year

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.

After one year of running the SIP

The following needs to be done in this order:

• find the new corpus which is the sum of the current value equity and debt fund values
• review the goal parameters (new horizon is 1 year less, review the current cost of the goals to adjust for actual market inflation etc.)
• re-balance between the equity and debt fund values as shown in the model

See this detailed post for the process for reviewing.

A note on having the pre-requisites in place

At all times ensure that you have the following in place

• An emergency fund with 6-12 months of expenses
• A term insurance policy (unless you are retired with no income)
• A health insurance policy (separate from the company-provided one, if any) for 10-15 lakhs as a base policy with a 50-100 lakhs super-top up
• A personal accident insurance coverage to safeguard against accidents where you do not die but cannot earn
• No high-interest debt like credit card or personal loans

All posts in this series

Please see below:

• how and why to set a goal
• how to get asset allocation for a single goal
• how to get SIP amount for a single goal
• how to get SIP amount for a goal with multiple payments
• how to get SIP amount for traditional retirement
• how to get SIP amount for early retirement
• how to get SIP amount for all goals together
• how to get SIP amount for recurring goals like vacations
• how to get SIP amount for buying a home