Does this DISK family need to work longer even after reaching 45x FIRE corpus?
This article discusses how to plan early retirement in the face of lifestyle inflation and lack of health insurance for an investor in their 40s.
Does this DISK family need to work longer even after reaching 45x FIRE corpus?
Posted on 08 Dec 2024
Author: Sayan Sircar
9 mins read
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This article discusses how to plan early retirement in the face of lifestyle inflation and lack of health insurance for an investor in their 40s.
📚 Topics covered:
- Does this DISK family need to work longer even after reaching 45x FIRE corpus?
- How to manage lifestyle creep?
- How to fund the kid’s college education goals?
- How to get proper health insurance coverage?
- Is OP ready to FIRE now?
- What is holding back OP from pulling the trigger on early retirement?
Does this DISK family need to work longer even after reaching 45x FIRE corpus?
DISK = Double Income Single Kid
This article is a response to a Reddit post:
Source: https://redd.it/1h8klor
We will cover the points made by the Original Post author (OP) one by one.
How to manage lifestyle creep?
Coming from a lower class, my current expenses are really shocking to me – OP
This is a problem that many of us face and there are many reasons for this.
The reason for this is that over the last 25+ years, OP has been earning and spending money due to which inflation of goods and services has been a silent factor that pushes up expenses without much warning. A basic Tier 1 city lifestyle with transportation (2-3L/year with car depreciation), good food (2-3L/year), school expenses (1-3L/year), entertainment (1-3L/year), travel (2-4L/year) and others (clothing, gifting, gadgets etc) can easily touch 15L without being considered lavish. That is just how it is.
I started tracking all my expenses(every single rupee) – OP
This approach is counterproductive and will lead to frustration and resentment. A much better approach can be one of two:
- follow the pay-yourself-first approach where investments, as per the outputs of a financial plan (see below) happen once salary is credited. The rest is spent guilt-free: How to budget, save and invest in a stress-free manner?
- categorise expenses into mandatory (must-spend like food, utilities, school fees etc.) and discretionary (entertainment, travel especially etc.) and then apply Ramit Sethi’s conscious spending plan on the discretionary items: How can you figure out your expenses in retirement/FIRE?
How to fund the kid’s college education goals?
This doesn’t include the 40Lakhs I have set aside for my son’s education – OP
A kid’s college education can be a wildcard. There is no way to predict, until and unless the kid gets admission, at even the quantum of amount needed. A simple example, using UG MBBS degree costs based on NEET rank will make this point clear:
- best rank – AIIMS Delhi or equivalent – the cost of a degree is in single digits in lakhs
- medium rank – government medical college – the cost of the degree is in low double digits in lakhs
- low rank – private institute with paid seat – cost of degree can easily top ₹1 crore
If you add 10% of inflation to education costs, then the problem becomes worse since in the short run, the education corpus must be kept safe (OP’s child is in Class X) and will need to be invested in safe investments like FD with low post-tax returns.
Why not take an educational loan?
If we think of OP and the kid as one economic unit, then whether 40 lakhs is enough is a moot point. If OP overspends on the degree, either they need to work longer or spend an extra part of their corpus on the degree. This will likely reduce the inheritance in the best case or the worst will make OP dependent on their kid 30 years from now for some expenses.
Alternatively, if OP’s kid takes a loan on the extra fee amount above 40L and creates lower wealth on their own due to loan EMI, they will then get a larger inheritance in the future. Therefore, the factor OP needs to control is the amount spent on the degree and not how much they have invested for that.
Also read
What will create a higher corpus for children's marriage: buying physical gold vs SIP in stocks
What will create a higher corpus for children's marriage: buying physical gold vs SIP in stocks
How to get proper health insurance coverage?
For health, currently depending on office cover. This is the biggest blunder I made in my life. I recently had some health issues and have to be dependent on corporate health coverage. I started looking for health insurance now and getting answers like, pre-existing disease cover will take at least 3 years. – OP
OP should go to a health insurance agent in their city and receive consultation on the best policies. 3 years of waiting is normal and unavoidable. There could be policies which have day-one coverage riders as well which the agent can provide guidance.
We are strongly of the opinion that health insurance policies should be purchased with agent involvement via a physical office. When a claim is to be made, the agent can provide invaluable service with claims so that you can focus on getting better.
A 20L base policy with a 1 crore super-top-up is the right combination of policies to get: What are top-up and super-top-up health insurance policies? Do you need either?
Another option that can be followed here is to take two sets of policies OP and wife/kid separately in case the premiums become too high for the floater. All of this can be discussed with the insurance agent.
Is OP ready to FIRE now?
I know I am financially independent. I want to retire now. – OP
We already know that:
- OP has 45x of net worth with 15L/year expenses. We can approximate this to ₹7cr (45 * 15 = 675)
- We will exclude the 40L earmarked for the kid’s goals since OP plans to manage that separately
- Out of the net worth, 30% is real estate generating 6L/year in rent which we will model without adding the cost of the house into the assets as described here: Is real estate a large part of your portfolio - how to value income-generating investments?
- The 70% net worth (rounded to ₹5 crore) will be used as the value of liquid investments
- We will model current expenses as mandatory ₹12L/year with ₹3L/year as discretionary. We need a way to squeeze in ₹50K/year of health insurance premiums into this
- We will assume 40 years of longevity (around age 95-100 years for the younger spouse) with early retirement starting one year from now
We use the Arthgyaan Goal-based investing calculator to formulate the investment model with all the above assumptions and goals. There is a link to download a pre-filled copy of the Google sheet via the button below.
Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.
Once you get your sheet, you can access video tutorials in the howto tab.
Here is the model output with these assumptions showing a deficit of ₹1.6 crore which will make immediate early retirement (RE in FIRE) not possible.
If we add in a modest ₹15L/year low-stress job (as shown above), essentially the so-called BaristaFIRE approach, to replace the primary income of OP, then the shortfall becomes more manageable to ₹51 lakhs.
What is holding back OP from pulling the trigger on early retirement?
Lifestyle creep and the health cover are the two things which are holding me from retiring early – OP
My concern now is my cash flow. If I quit my job now, my cash flow will be reduced. So my goal is to try and increase my monthly cash flow in the next year or two – OP.
There are a few options here:
- a stand-alone health emergency fund, say 10-20 lakhs can be created to act as a buffer until the PED exclusion period is covered
- instead of quitting the job, a part-time working arrangement or sabbatical arrangement can be done so that the company-provided health insurance can continue
- as a long shot, approaching the same insurer, to convert the company-provided group plan into a personal plan can be an option
- lifestyle creep is inevitable but can be managed as described above with expense segregation as explained above
Related:
FIRE journey in India: what happens if you work just a bit longer
The most practical thing to do here will be to delay early retirement for around three years until the health cover fund is in place and the PED-exclusion period is over.
Related Articles
- Health insurance: what, why, how much to get and from where?
- Case study: how this double income single kid family can perform DIY goal-based investment planning
- How much money does this 39 year old investor need to invest per month to retire at 58?
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This post titled Does this DISK family need to work longer even after reaching 45x FIRE corpus? first appeared on 08 Dec 2024 at https://arthgyaan.com
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