POSTED BY September 24, 2012 COMMENTS (74)

ONIf you have Rs 50 lacs with you and you want to generate some consistent income for next many years, how many years you can generate income? Think about it! Put some very high level calculations in your mind and try to come up with some numbers! . Will it be able to generate a lac of monthly income for next 10 years or not? Will it be able to generate Rs 30,000 of inflation adjusted income every year for next 30 years or not? Will it be able to generate Rs 30,000 of income increasing at 5% each year for next 100 years or not?

**Still wondering ? **

Lets discuss a very basic problem which many people face in financial life. A lot of people at times have a big lump sum amount like 20 lacs, 50 lacs or say a crore! Now they want to know how much income can be generated using that big amount which can be used by their family. This can happen in many situations like following

**1.** When a person wants to make sure that he wants some kind of passive income out of a big chunk of money

**2.** A person might have got retired and now he wants to create a pension for himself using the big amount of money he/she has saved

**3. ** A person wants to leave his job and because of uncertain future , he wants to utilize a big sum to generate a certain cash flow in future

**4. **You might want to find out how much of life insurance you should take so that your family can start getting monthly income by making a fixed deposit out of the money.

Coming back to our example – Let’s talk about Rs 50 lacs. How much monthly income can it generate? And for how many years? This will depend on three things.

- How much inflation you are considering
- How much return on the investment you are considering
- How much monthly income your want to generate per month

Here are some of the permutations and combinations assuming different values for Inflation , Return on investment and monthly expenses needed and a corpus of Rs 50 lacs in hand.

You can calculate this in many ways , but one of the ways you can do is by calculating it in excel sheet. We have this calculator on our upcoming Jagoinvestor Wealth Club product (our paid product) . You can download this calculator and play with different numbers and plan out for yourself. The calculator shows the answer along with the graph of the wealth and how it grows or shrinks over the years.

Was the calculator helpful for you? What other kind of tools you would like to have and to what level ? You can start using this calculator and see what is your net worth and how much monthly income can you generate at this moment if you leave your job and in case you are not able to bring money to home due to some issue.

Hi ! I am 28 years old bachelor living with my parents. We have got a corpus of 55 lakhs recently on sale of property. I have no job(active income), no own house, no insurance (any). Consider I will not do any job for your financial suggestions.

My Requirements and goals:

1. We need 20-25k per month for our living

2. My marriage within 2 years.

3. A 15-20 LAKH own house within 3-5 years.

4. I should have at least double my investment after 15-20 years

5. Retirement corpus.

My idea of planning: need expert opinion on this after reviewing:

1. 5 lakhs in bank account for first one year for monthly expenses and apply for IPO s for listing gains.

2. Park 40-45 lakhs in hybrid equity funds and opt for SWP of 35k after 12 months and SIP the remaining after monthly expenses into 1 mid cap and 1 small cap for long term say 7-10 years.

What I am missing here is how to choice various insurance like term and health for all members and an emergency fund. Will the term policy be applicable as we are not working ??? Also suggest me with a detailed restructuring of scenario. I am able to face medium risk and see that my Requirements are met. Or I would be happy to solve all with a different approach.

Awaiting your detailed reply

Dear Manish,

I have had invested in icici maximizer ulip whose maturity period is 10 years,l have completed 8 yrs of payment term and with current nav,fund value is 54 lacs.I wish to withdraw the policy and intend to have a secure income.How much income can be safely generated with mentioned amount?I am 38 years old now.Please advise,

Hi Rajnish

You can get a 35-40k income from that per month .

Manish

hi Manish,

thanks for your reply..yes i would like to know what all possible ways i can invest the money or allocate the money so that interest earned or generated money would be sufficient for my future post 7-8years..thanks again

We can build a mutual funds portfolio for you and get you invested. I will email you !

Manish

Hi Manish,

Thank you so much for responding. Unfortunately i didn’t get this sentence from your response which says ‘A 50L can give you 1 crore after a year and it can generate only around 20-30k per month with inflation linked to it.’

Are you trying to mean that after 8 years my money would grow to 1 crore and the interest I will get would be equivalent to 20-30k per month as on today’s value…

please clarify.

and also want to include since I have no big purchases to make like land/house/car/jwellery then please suggest me how can I invest the money in such a way so that I can travel around globe from the interest earned.

thanks in advance.

Hi sangeeta

50 lacs invested even in FD can give you 1 crore in 8 yrs . 1 crore can generate 80k per month , but that will be fixed for future (80k per month for years and years) . If you want a increasing interest which increased by inflation, then you will get 30k per month which can be increased in later years.

We can help you invest this money in such a way that it gives you monthly income . Let us know if you need our help in that !

Manish

Hi Manish,

I want to know if now I invest 50L in a bank FD for 8 years without withdrawing any money will that be a good idea to depend on that matured value after 8 years for the rest of my life upon interest. My age is now 30yrs.

Yes, you can do that and it will be enough, but only if your montly expenses are very low . A 50L can give you 1 crore after a year and it can generate only around 20-30k per month with inflation linked to it .

Manish

if some one have 5 lakh rupees to invest, can u help in suggesting where to invest except sharing and trading or mutual funds.

For how long ?

Dear Munish ji,

Please Answer it…….

if a person invests Rs, 2000 per month for twelve months in a jwellerry scheme & get Rs, 14000 on thirteenth month, so what % of interst is on investment of Rs. 12000 ,,which he invests in monthly installments he get ???

waiting for your soon reply With calculation

Thank you…

Maninder

You can use IRR for this , see it here https://www.jagoinvestor.com/2009/08/what-is-irr-and-xirr-and-how-to.html

Just wanted to share this link for everyone’s benefit – http://www.mpfinancial.sites.acclipse.com/our_calculators. It has many free calculators similar to above. Also they arent password-protected, so those interested to know the logic/technical aspects of calculation can do so.

Thanks for sharing that Chaitanya !

Dear Manish,

This is an excellent tool. One aspect can be added to the calculator. Even one is retired, he may have some assets generating passive monthly income like MIS or rental income. If that aspect being captured in the calculation, the outcome will be more realistic

Thank you

Yea thats a good idea .. I will add that in future !

Awesome.Thanks for sharing the excel. Really helps!!!

Welcome Mahesh

Hi Manish,

Very cute calculator. I have shared this with a few friends at office and all are awed at this.

It would be good to get another similar calculator.

Say, my monthly expenses today is M. My age now is A. I expect to live till B. So, i would need Rs.M*12 for the next (B-A) years, inflation adjused every year.

So, we want a calculator to show what is the corpus amount i should have now, next 1 year and so on till B.

So inputs are M, A, B, Inflation, Returns% and output should be required corpus now, next 1 yr and so on till B.

This will give a picture of how much i should catch up before i call it quits for my work 🙂

Sure will be do that kind of calculator too .. infacts it already there in our upcoming Jagoinvestor Wealth Club !

Manish,

Can you please do a write up on the gold bhishi schemes run by most of the jewellers in India for e.g pay Rs.1000 per month for 12 months and get gold worth of Rs.13,000 in 13th month.

that means you will get a benefit of some 7-8% in a year .. what great about it !

Thanks you Manish for this wonderful arcticle which is eye opener. I tried various inputs in your calculator to get idea of planned retirement corpus. Now I am in even greater dilemna. I am 30 years old and married. My spouse is also employed. Confused whether to drop my plan of buying flat. I feel that its better to save the emi in some good mf sips and continue to stay in rented house, this will build my desired retirement corpus after 25 yrs. Please help

that you can do , but when you retire, do you prefer to roam around in rented places at old age ? Dont you think you would like to stay at some place which is fixed . What you can do is go for flat now , and in your retirement , sell it off and move to some smaller apartment or a city which is cheaper 🙂 .

Nice article. I have heard the inflation adjusted returns but practically ran the numbers first time through your calculator. Indeed an eye opening output. The cost inflation index of CII published by GoI in the range of 6-8% does not reflect the ground realiy. The working class with wife & kids has to cope up with rise in expenses towards Kids education (Eduflation), Vegetables & Fruits (Agflation), Medical care (Healthflation)and Transportation(Fuleflation).

While the government is keeping DA announcement as per the inflation, but it chose to turn the blind eye towards Fixed Deposit rates. Sometimes you get to see shocking announcements like inflation is up but the interest rates are down.

I do not think FD rates would ever be in the range of positive spread of 2-3% over inflation. The only way it seems to stretch the retirement corpus is by lowering the monthly expenses but one may have to be content with the inferior quality of life.

Yea .. thats the only option if you do not have much time left for retirement , else you can give one last push by taking risk with equities, minimum 10 yrs required for that .

This is a good template but as I understand to arrive at the figure you need the simple thumb rule is to multiply your yearly total expenses by 25 & you will get an amount which will last you through life (the famed 4% withdrawal rate Thumb rule). works excellent way for me

Thanks for that tip . But the point is maximum corpus means more security . Instead of 25 times, why not 50 times with 2% withdrawal rule ?

well @4% withdrawal rate the Corpus will not end for 30+ years this is assuming no addition to income, which is impossible, if you are looking at age of 30 as retirement &

if the retirement age is 60then you are covered upto 95 through this rule. which i believe to be an age greater than anybody is planning currently 🙂

Hmm yea .. thats a good idea ..

Great one as usual, Manish.

The bug pointed above reg “months” portion of the result is because the formula has INT(H18) to display “months”, it should instead be INT(H19).

Yes , I have fixed that , how did you figure it out ?

fine

I think calculator can be improved further, spending 50k per month from 50Lakh fd will last for 9 years not 8 years. Here are two calculations

a b c d e

Principle Expenditure Interest At year End

1 5000000 600000 376000 4776000

2 4776000 636000 356640 4496640

3 4496640 674160 332765 4155245

4 4155245 714610 303835 3744470

5 3744470 757486 269258 3256242

6 3256242 802935 228382 2681689

7 2681689 851111 180491 2011068

8 2011068 902178 124798 1233688

9 1233688 956309 60443 337822

337822 1013687 -13522 -689387

Interest Formula (B- C/2)*0.08

Principle Expenditure Interest At year End

1 5000000 600000 352000 4752000

2 4752000 636000 329280 4445280

3 4445280 674160 301690 4072810

4 4072810 714610 268656 3626856

5 3626856 757486 229550 3098919

6 3098919 802935 183679 2479663

7 2479663 851111 130284 1758835

8 1758835 902178 68533 925190

9 925190 956309 -2490 -33609

-33609 1013687 -83784 -1131080

Interest Formula (B-C)*0.08

Bhupesh

I dont think your assumption are same as calculators , the calculator assumes that the money will be withdrawn on yearly basis, so if one wants 50k per month ,he will withdraw 6 lacs in one shot . And then withdraw from it on monthly basis .

Then the remaining 44 lacs will be invested back and next year the expenses will increase by inflation . Do the calculations like this . And see the results !

Also as per the calcualtor the right answer is 8 yrs 10 months , which is close to 9 yrs only . There was a bug in earlier version of excel ,now its correct. download it again and check

Very useful calculator…good work again

Thanks Santanu

This is really an eye-opener! At the same time, I am really worried about my future as I had thought that I shall able to clear-off my Home Loan by the age of 40 and then next 10 years I will save for my retirement. In those 10 years, when I attend age of 50 years, even if I save Rs. 50lacs., this is less likely though, assuming Rate of return as 7% ( ROI will keep on decreasing over time), inflation at 6% and expenses per month Rs. 50000, the amount will last only for next 10 years i.e. till age of 60 only. If I would like to increase expenses per month, which is more likely, then the accumulated amount will not last till my age of 60 as well. This is really shocking. I think, I need to find out the ways so that I can accumulate at least triple the amount, Rs. 1.5 Cr, so that it will last for 30 years.

Looks like you have not read the first chapter of my book Jagoinvestor . better order it and read it , you will get more shock 🙂 , but it will be for your good only . http://www.flipkart.com/jago-investor-9380200415/p/itmd68wtdnghgyqz#read-reviews

Shock,

Saving will never make you rich, try investing.

Some simple suggestion, look if it helps you.

Suppose you are 40 now, you have 20 years for retirement.

Suppose you buy a plot worth 50 lacs with bank loan.

You can repay that loan for the next 20 years.

Now historically if you see the land appreciates much more than what you will pay as an interest.

Take a wild guess, it appreciates 10 times (conservatively), you have corpus of 5 Cr now…

A Brilliant illustration of whats required to enjoy the current level of benefits..

For Everyone who thought that 50, 00, 000 at the Rate of return of 9% will last a lifetime when expenses are at 30,000 at inflation of 6% , do not understand the power of compounding. There is a very small period where the corpus grows (6 yrs to be precise) then the downward spiral is steep ending at zero at year 20.

You would be amazed that even at a Rate of return of 12 % with all other figures remaining same. The corpus will last for only 33 yrs.

All of these are excel calculations and still don’t factor very crucial negatives like Income Tax, unaccounted Medical / Family expenses.

Thanks for informative article.

Thanks Kunal ! .. really appreciate your comments .

Hi Manish,

I think there is a problem with the calculator. When I entered the input as 11,00,000 and ROI as 12.5%, the output says 3 years 0 months. Now when I change ROI as 6% the output still says 3 years and 0 months though the graph goes down. So, I think the months part is not calculated correctly

Yes Ram

There was a bug , now its corrected and now you can download the sheet again , it will work correctly

I agree with Thaya. So long as I keep my expenses lower than my interest per month, the corpus can never come down. Is there an error in the calculator? Are we being too pessimistic in our calculations?

Great article though. Most people planning for early retirement need to do this calculation but get caught in the nuances of it. The article helps address it.

Good stuff from JI as usual.

The assumptions as per the calcualtor are that the amount is withdrawn on yearly basis , so in one shot 1 full year of expenses are withdrawn , for a case better do the calculation on excel and see the details, there is no error in excel 🙂

Thanks for the clarification Manish.

Manish,

I am not getting one thing that if my money (50 lacs) grwing at 8% and inflation 6% every year still i will left with 2% ( 8-6 ) return on my money which i again invest and earn extra money..

With this type of calculation ,many times a scaremania is generated.The total inflation is much different from food inflation and total food inflation as declared by government is different from personal food inflation.It is erroneous to calculate inflation at a personal level from such calculations which take government data on inflation and generalize it on everybody .Government data on inflation is based on a basket whereas large no. of items from that basket may not be consumed by an individual or may not be consumed in the same proportion as the government basket eg an individual may not consume eggs or meat at all and may use oil sparingly in food.In such a situation applying Government data of food inflation on such an individual mechanically ,will not be very wise.

Even otherwise,if someone puts fifty lac rupees as one time investment in some debt instruments with an yearly yield of a conservative 8%,with 4% personal inflation yearly and spends three lacs per year ,he can continue it indefinitely because his remaining money will continue to appreciate by 4% yearly in a compound fashion

Government announced inflation is deemed to effect everyone equally whereas inflation effects everyone differently depending upon his consumption pattern and habits

I fully agree with you Ravi that inflation declared by Govt is not accurate.

My doubt was that Manish have mentioned in the table given above that if you have 50 lacs amt, It will last up tp 8 yrs only considering 6% inflation and 8% return on investement but still i am left with 2% (8-6) return so I can continue this way indefinitely..

Then why Manish mentioned that it will last up to 8 yrs only? Am i missing something here?

you are also withdrawing 50K every month from the total corpus and this withdrawal will increase every year with inflation and hence the corpus will exhaust in 8 years.

Dear RD, the point you are missing here is your expense throughout your lifespan is not constant i.e. if your monthly expense is 30K today, then after 5 years it may touch 25K. Another fact is, your % of withdrawal from actual corpus is more than the annual yield of the corpus itself. Which is why your corpus ends in 8 years!. Hope you got it.

A correction – read it as 35k, the monthly expense after 5 years

Thanks Sandeep, Ravi and Muthu for your inputs.

Now its clear to me why corpus will end in 8 yrs. I did not consider earlier that every year my monthly expense will rise.

As per the calculator , the withdrawal is on yearly basis .

Do the detailed calculation and see !

much of retirement requirements is nothing but scaremongering.i agree with the person who has outlined inflation is more of a macroeconomic parameter and it cannot be used to define personal expenditure.Inflation includes items like real estate ,transport.Why would a retired person need this?For that matter food consumption also begins to fall after a certain age.Typically most of our expenditures are front loaded or happen early in our life like higher education,marriage ,house ,car etc.Most of these are usually funded by loans and it should be.So typically a person in the age group 25-50 pays a significant part of his monthly income in loan repayment.The only part where inflation can be applied is on items like food,clothing and utilities.This also reduces as family size decreases as one approaches 60(children leave for job and marriage etc).I would also like two add further two points.Indians on an average have a lower life expectancy and so should retire by 50 to enjoy golden period(unless you are really enjoying your job) and even if you live longer most immediate annuity products provided by life insurance companies will provide very high payout for people in advance age.Finally many indian families are still multigenerational especially those in business and agriculture.I wonder what is the retirement plan for these individuals?

Thansk for your points .. i agree that food intake reduces later in life . What do you think is the average life span a person should plan for ? Is it 70 ? is it 80 ? What is your suggestion for retirement planning ?

retirement planning will vary from individual to individual greatly.for eg a government employee is already covered through NPS and his job is assured till 60.such is not the case in private sector.So one essentially has to look into the risk profile of ones earning(be it job or business).For private sector workers in services sector job security becomes less as one gains in experience though salary may rise.I think one good approach to take advantage of equity market is through SIP/SWP stategy.Which means say i want to be in equity for 30 years.Of that first 16-17 i will be doing SIP and then SWP.This will give max advantage from equities(long term exposure).As i mentioned once u cross 60 look for annuity plans from insurers.So u have to plan basically with these variables in mind. I am wary of accumulating a lumpsum through sip as equity market can be very volatile and all your gains may be wiped out at the time of withdrawal.Essentially just as u do SIP to accumulate units u must do SWP to redeem it.

Yes Deep

very rightly said that 🙂 ..

Very nice article. Thank you Manish.

Dear Manish,

Excellent eye opener!

Though I am still few years away from retirement, it has set me thinking.

Keep it up.

Manoj

Good to hear that .. can you share why it got you thinking, what is your current situation ?

Hi Manish,

Nice article. but i have some doubts in the calculation. If i deposit 50 lakhs in FD @10% per annum, i get 5 Lakhs as interest means 5L/12 =41,600 per month. I use only 30K per month and i put the remaining amount 12*11,600= 139000 in FD. so the next year my corpus is 50L+1.4L=51.4 L and inflation is 6%. i get

5,14,000 interest means 5,14,000/12= 42,833 per month and my expense will be 30,000+30,000*.06=31,800, i deposit the remaining amount 12*(42,833-31,800)= 1,32,396 and now corpus will be 51,40,000+1,32,396=52,72,396 and keep going like this. in this case what happens, don’t i accumalate my corpus? please correct me if i am wrong.

Regards,

Thaya

Dear Thaya,

Just continue this calculation for few more years and you will see why the corpus which keeps accumulating for first few years, suddenly drops after few years. Just refer to your calculation. In the first year, your saving was 11,600 per month (41,600 minus 30,000). Second year this DROPS to savings of only 11,033 per month (42,833 minus 31,800). This yearly savings keeps reducing every year and become ZERO savings per month in 9 years. From 10th year onwards you will start spending more than the interest earned. So, the ‘deposit’ also keeps dropping. since deposit has reduced now, next years interest drops further, but expense still keeps climbing. In another 11 years, deposit also becomes zero.

Regards,

Bhushan

Have you accounted for tax for interest you earned on your FD?

@Rajesh, If we consider the total FD income is 4 lack @ rate of 8% on 50 Lack, so we can consider income tax nil by means of divide deposit by self, wife and HUF.

@furthformaer, Kindly look for the bellow table, you can see from fifth year your principal going negative and from 18th year it is going to negative. bellow table is with above data with 6% inflation.

1 5000000 400000 360000 5040000

2 5040000 403200 381600 5061600

3 5061600 404928 404496 5062032

4 5062032 404962.56 428765.76 5038228.8

5 5038228.8 403058.304 454491.7056 4986795.398

6 4986795.398 398943.6319 481761.2079 4903977.822

7 4903977.822 392318.2258 510666.8804 4785629.168

8 4785629.168 382850.3334 541306.8932 4627172.608

9 4627172.608 370173.8086 573785.3068 4423561.11

10 4423561.11 353884.8888 608212.4252 4169233.573

11 4169233.573 333538.6859 644705.1708 3858067.088

12 3858067.088 308645.3671 683387.481 3483324.974

13 3483324.974 278665.998 724390.7299 3037600.242

14 3037600.242 243008.0194 767854.1737 2512754.088

15 2512754.088 201020.3271 813925.4241 1899848.991

16 1899848.991 151987.9193 862760.9495 1189075.961

17 1189075.961 95126.07688 914526.6065 369675.4314

18 369675.4314 29574.03451 969398.2029 -570148.737

Manish,

Exellent. Thanks for the Calculator.

Will the above calculation be like this as per the calculator?

Total Money Interest Earned Monthly Expense Annual Expense Remaining Money Remaining Money

5000000 0 30000 360000 -360000 4640000

4640000 371200 31800 381600 -10400 4629600

4629600 370368 33708 404496 -34128 4595472

4595472 367637.76 35730.48 428765.76 -61128 4534344

4534344 362747.52 37874.3088 454491.7056 -91744.1856 4442599.814

4442599.814 355407.9852 40146.76733 481761.2079 -126353.2228 4316246.592

4316246.592 345299.7273 42555.57337 510666.8804 -165367.1531 4150879.439

4150879.439 332070.3551 45108.90777 541306.8932 -209236.5382 3941642.9

3941642.9 315331.432 47815.44224 573785.3068 -258453.8748 3683189.026

3683189.026 294655.122 50684.36877 608212.4252 -313557.3032 3369631.722

3369631.722 269570.5378 53725.4309 644705.1708 -375134.633 2994497.089

2994497.089 239559.7672 56948.95675 683387.481 -443827.7138 2550669.376

2550669.376 204053.55 60365.89416 724390.7299 -520337.1798 2030332.196

2030332.196 162426.5757 63987.8478 767854.1737 -605427.598 1424904.598

1424904.598 113992.3678 67827.11867 813925.4241 -699933.0563 724971.5415

724971.5415 57997.72332 71896.74579 862760.9495 -804763.2262 -79791.68468

-79791.68468 -6383.334774 76210.55054 914526.6065 -920909.9413 -1000701.626

-1000701.626 -80056.13008 80783.18357 969398.2029 -1049454.333 -2050155.959

Rashmin,

I liked your explanation . It clarified some more things.

Thanks

Amazing calculator Manish! Thanks so much for sharing with us.

For me it’s little easy to comprehend return on investment since I know it in advance – like book FD’s for n number of yrs. But inflation is highly complex! For example comparing my 2000 expenditures with 2012 there is total turnaround. My expenses have gone up so high with not much addition to capital assets, I doubt 7 or 8% increase p.a. is correct. While we can make conservative estimates and hope our prediction for nxt 30 yrs may be more than enough but certain events in future which are not seen now can change everything. Is it possible to know Indian economy’s average inflation for an extended period say last 30 yrs. May be this complex area needs a closer look by you? Tks.

If you look at the past inflation and do a simple average . it comes around 7-8% only . So I suggest just use a average number and get an indicative number . This calculator or any calculator can not predict full future . Just an indicative number !