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How do you get SIP amount for complete portfolio: Part 5

Posted on 07 Jun 2021
Author: Sayan Sircar

Tags: Set Goals ; Calculator

5 mins read

Walk-through: Get SIP amount for all goals together

Calculation of SIP amount

We have already covered

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

📚 Topics covered:

Assumptions made for calculations
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

Portfolio over time

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.

Recent articles:

1 / 3

<p>This article explains if Indian investors should consider investing in gilt or government securities mutual funds for their goals.</p>

2 / 3

<p>This article compiles an exhaustive list of FAQs on the concept of NRE Fixed Deposits (NRE FD).</p>

3 / 3

<p>This article gives you a glimpse of how the power of compounding creates a multi-crore portfolio in retirement.</p>

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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). The sheet will also show you your minimum term insurance coverage amount
a health insurance policy (separate from the company provided one if any) for 10-15 lakhs as 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:

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

Discover an article from the archives

Worked out case studies for goal-based investing

Case study: can this double income single kid family reach FIRE at 50?

This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?

This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
Case study: how this double income recently married family can perform DIY goal-based investment planning

This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Case Study: How should couples in their 40s with a new baby plan their financial future?

Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
Case study: how this double income single kid family can perform DIY goal-based investment planning

This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.

Previous and next articles:

<p>Walk-through: Get SIP amount for early retirement (RE)</p>

Set Goals Calculator

How do you get SIP amount for early retirement (RE): Part 4

Walk-through: Get SIP amount for early retirement (RE)

Published: 6 June 2021

5 MIN READ

<p>Once goals are set, use this framework to choose mutual funds</p>

Choosing Investments Mutual Funds

Which funds should I invest in?

Once goals are set, use this framework to choose mutual funds

Published: 8 June 2021

3 MIN READ

Latest articles:

<p>This article shows the historical performance of this fund as an example of a long-running gilt fund to demonstrate the risk and return in a gilt fund.</p>

Mutual Funds Review

Mutual fund report card: Kotak Gilt Fund

This article shows the historical performance of this fund as an example of a long-running gilt fund to demonstrate the risk and return in a gilt fund.

Published: 7 June 2023

3 MIN READ

Mutual Funds

Gilt funds do not always go up in value. Should you invest in gilt funds?

This article explains if Indian investors should consider investing in gilt or government securities mutual funds for their goals.

Published: 4 June 2023

4 MIN READ

Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (10) Budgeting (11) Calculator (16) Case Study (5) Children (12) Choosing Investments (35) FAQ (5) FIRE (13) Gold (6) Health Insurance (4) House Purchase (14) Insurance (14) International Investing (9) Life Stages (2) Loans (9) Market Movements (11) Mutual Funds (28) NPS (5) NRI (8) News (6) Pension (8) Portfolio Construction (42) Portfolio Review (24) Real Estate (4) Retirement (35) Review (12) Risk (6) Safe Withdrawal Rate (5) Set Goals (26) Step by step (10) Tax (25)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
OR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

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