Deepak S Kanchi ACA, CIA


How much should I save for my retirement and when should I retire?

These two questions are like uninvited relatives. One cannot chase them out but at the same time got to treat them special.

Americans love numbers to the extent that they measure everything with a pinch of stats (cups of coffee consumed or the number of honks, in key F, their gas-guzzling cars have blared – I am not sure what is the use of the latter one). No other country loves numbers like America. Every part of their life, however trivial it could be, is bombarded with statistics. In my opinion, most of the stats (commercial ones) are influenced by marketers to increase market share, destroy competition, and ultimately drive “unlimited profits” to the shareholders!

I will talk about these mind-blowing trivial statistics and how convoluted logic is used to pursue one’s agenda – in another article.

Right now – another thumb rule is on your way. And that is “4% Rule”!

What is the 4% Rule?

The retirement pool or fund is no exception to the whirlpool of stats. Amongst them, the “4% rule” is probably the simplest. This rule answers the fundamental question of what should be the size of your investment portfolio when you retire? The rule helps you plan for a corpus that would enable you to enjoy the current lifestyle till your last breath. Generally, one lowers his/her standard of living after retirement. If you plan well in advance and accumulate enough corpus, maintaining your current standard of living should not be an issue.

Then let’s delve into the mechanics of it.

First step is to define your current & retirement lifestyle.

Second step is estimating your yearly expenses to maintain your current lifestyle and then make adjustments to reflect changes in your post-retirement lifestyle.

Third step is estimating your retirement age and arrive at the “corpus” amount.

Define Your current & retirement lifestyle.

This should be your retirement corpus when you retire. You must invest this sum – say 50% in equity and 50% in bonds. Collectively it can give an average of 7% yearly returns.

Let us say you retire at the of 60 and this corpus will take you through for another 25 to 30 years. You can start withdrawing 11 lacs from the corpus in the first year.

How Inflation affects Retirement Corpus?

You might ask what about inflation? That’s a very important aspect that can jeopardize any financial plan. The 4% rule is built in such a way that you can withdraw enough money to maintain the same lifestyle despite inflation, say 3 to 4%. So, you can withdraw in the second year an amount of (11 lacs + 33K for inflation) and third-year withdrawal will be 11.67 lacs and so on.


    • This is just a thumb rule – consult your financial advisor for detailed advice.
    • This corpus is only to maintain regular expenses. Any extraordinary major expenses like college admission, children’s wedding is not covered. One should create separate funds for them.
    • Financial discipline is paramount – DO NOT withdraw big chunks from the corpus. This will affect future earnings and might lead to financial distress.
    • Not applicable in hyperinflationary economies like Venezuela.
    • Pension is not considered

Although there have been several studies to indicate 4% rule sufficiently takes care of ups and downs in the economy. However, for many skeptical and conservative investors like me 4% rule might not be good enough. I personally would go for the 3% rule. That means I will start my retirement with a corpus of around 3.67 crores instead of 2.75 crores. Arriving at the corpus amount is just a start – one needs to carefully manage his investment portfolio by reviewing periodically and suitably adjusting/reallocating assets as and when required.

Do let me know your thoughts in the comment section.

Read also: Double your Money

There isn’t any judgement here. Nor any opinion. It’s just plain observation of how things have changed and are changing – an observation of changing tunes of Globalization. Growing up in the 80s, as any other young adult the world-news that was available in the traditional news outlets then, left much to be desired for. India was closed economically, culturally (no MTVs, Channel Vs yet) and news wise too. The World this Week by Prannoy Roy and bits & pieces on DD news was all there was. International trade was not high on a teenager’s agenda when it came to news segment. Nevertheless, I was too curious to not to gobble up any piece of news those days. “Super 301” was one such rhetoric that was heard many times. That was a weapon, a threat wielded in the face of an “economically closed” countries like India by US. Protection to domestic players was high on priority for most under-developed/developing countries and India was no exception. A discussion on merits and demerits of it can be saved for another day. Refusal and restrictions on US multinationals to operate and sell their goods in India was not liked by any US presidency whether it was Democrat or Republican. I believe it is the same even now.

Open markets was the mantra every western government preached and pushed. Globalization was western societies’ pet child.  Pure capitalism at the global level was the justification given for such a stance. And such capitalism was expected to benefit one and all. It also meant their markets were open to rest of the world – but mind you with plenty of fine print. First one would be quality, then child labour, then human rights and then environmental protection clauses and the likes of such would effectively make many products produced in developing countries ineligible for US imports.

Globalization – Production Efficiency Theory

According to Production efficiency theory, which is the premise for free trade, each nation should produce which reflect the most efficient use of its resources. For example, country A can produce bicycles and grow mangoes, and so can country B. Question is should both countries produce/grow both products? As per this theory – answer is NO. Let us say Country A is bestowed with fertile land but limited manufacturing skill sets and set up. And country B has excellent manufacturing skill sets but not so fertile agricultural land and very little water resources. So, A should use all its resources to grow mangoes and B should focus on manufacturing bicycles. A can export mangoes to B and import bicycles from B. In essence, each country should stick to its core strength and produce that reflect the most efficient uses of resources. Country B trying to grow mangoes may not be the most efficient way to go about it and Country A will waste its resources if it tries to produce, inefficiently, bicycles.

Section 301

Section 301 under US Trade Act of 1974 gives the President the power to retaliate against a foreign government if he/she feels US business is facing unfair disadvantage and it is detrimental to their interests. He can do by increasing import duties (tariff based) from that country, block the goods from entering US. Trump used this very clause to impose restrictions on Chinese exports to US. ( Section 301 Tariffs: US-China Trade War Worsens).  

Since China embraced capitalism in 1979 its main agenda, in addition to replace US as sole superpower, has been to lift its billion plus people out of poverty. It became factory of the world and countries like India, Philippines became places to body shop for software services. US companies embraced every idea of outsourcing whether it was manufacturing or software development. Jobs left US as they got “Bangalored” every day. Both Democrats and Republicans stayed put for the past three decades – as US MNCs’ profitability seemed to have overshadowed loss of US domestic manufacturing capacity and jobs (around 6 million such jobs were lost in a decade between 2000 and 2010).

Why Trump won?

Much before 2015, when Trump was toying the idea of running for POTUS, he made it clear of his agenda. Less outward looking and more inward looking. Less of global leadership and more of fixing things internally. Probably he is the first US President to speak against globalization. He sounded like a head of state of an under-developed/developing country.

“Why Trump won?” is an interesting topic that every political analyst worth his salt has tried to answer with his own angle. Most democrats blame it to the rise of the racist white America. But analysts & media on the right credit the win to a whole set of other reasons.  Prager University is one such American conservative media outlet on the right. Their video “Why Trump won” has former PM of Canada Stephen Harper as anchor. The video among all, says Globalization has not worked for Americans. With jobs shipped overseas, incomes of ordinary Americans have declined decade after decade. The laws and regulations are “influenced” by Global Institutions. Nationhood is no longer at the helm of society.

This argument is echoed across all sections of rightwing media. Without getting into fact checking of such claims, if the argument itself is presented, as plain text – removing all references to country and author, would look like a claim made by the likes of George Fernandes or Swadeshi Jagaran Manch (George Fernandes was instrumental in kicking out Coke from India in mid-70s.)

Remember conservatives are vehement proponents of “Open market” and Laissez-faire policy. Market forces are free to decide the prices, quantity of production and everything else.  But same conservatives are singing a different tune now – they want tweaked version of Globalization. Country first is the cry & hence MAGA!

Globalization – A full circle journey!

So, does that mean “Globalization” has come full circle, with the most powerful country on the face of the earth voting yes for protectionism openly. Putting national interests above international trade pacts like NAFTA and WTO. Exiting Paris Accord. Or has it always been selectively used to propagate political influence in the guise of business? Will this end if Trump loses 2020 elections?

What do you think?

Kisan Vikas Patra, the original claimant to “Double Your Money” marketing campaign has been with us since decades. As a kid, the math behind it intrigued me. It was the Power of compounding which I learnt later in middle school, but there was no way to quickly know how many years it would take to double or triple the investment. My mother was the official financial planner of the house, even though father was the sole bread winner, as in the case of millions of middle-class families. Doubling money was one of her cherished goals as she tried to match the cash outflows to current cash balance plus future earnings of my father plus investment earnings. It included both revenue and capital expenditures – like college education and children’s weddings. And the plan was reviewed frequently to adjust for any unforeseen hiccups. That’s cashflow forecasting at its best! MS-Excel – you were not there to help. It was all in her mind and utmost on a few pieces of paper. A simple Casio pocket calculator, which my father used in his hospital to reconcile veterinary drug inventory and his monthly expense statement to the HQs, was all the tech there was. But she was not very fond of it. She took to the traditional path of using pencil and a paper to work it out. But most times it was my father’s and my task to re-compute and re-verify the “return” claim of every investment opportunity.

KVP was part of her investment portfolio. 80s and 90s were the good old days of high interest rates – my earliest memory was KVP promising to double the money in 5 years, which became 6 years by late 80s, then 7 years and so on. Currently it is at around 13 years (After the reading this article try to arrive at the interest rate offered if doubling is promised in 13 years – you can give your answers in the comment section). And that claim was taken at face value without any doubts. Government backed security – so no risk of default. So, if they can double your money in 5 years what is the interest rate they offered? Or if they offered 10% interest per annum – how long it took to double your money. You can arrive at the rate of interest and the years to double by using Compound Interest formula you learnt in your middle school. Both these questions can be answered by applying the knowns in the formula A = P(1+r/100)^n to arrive at the unknowns.  P = Your initial investment or Principal amount, r = rate of interest per annum, n = number of years and A = Maturity amount.

That calculation would take some time, say a few minutes, but if you apply the “72 Thumb rule” – it takes exactly 2 seconds – may be less if you are quick in basic math. It’s a one-step formula – divide the number 72 by the rate of interest per annum to arrive at the number of years it would take to double your money. If your investment is earning 10% per year, then it takes approximately 7 years and few months to double. If interest is 8% – then doubling time is 9 years. And conversely if they claim the investment will double in 6 years you can arrive at interest rate per annum by dividing 72 by 6. The answer would be 12%. It is important to remember the effect of compounding here. That means the interest earned in first year gets added to the principal amount and the interest for the second year is calculated based on initial investment plus first year interest earned. The interest keeps getting added and the compounding chain continues till maturity. And that’s Magic!

Interest Rate Years to double
8.00 9.00
9.00 8.00
10.00 7.20
11.00 6.55
Table with interest rates and years to double

We will continue to learn more tools that are generally used in Corporate world, but equally adaptable to personal finance decisions. If you want us write on any topic of your choice in Finance, Economics, Tax, Medicine – do let us know in the comment section. We will be happy to help.

Since I received the email cancelling exams in the second  week of March from the Principal, – I had been hopeful the management would do a U turn on the planned annual increase in school fees, which was around 15%. My expectation got a little more ambitious as the lock down continued for long and incomes across the middle class and lower middle class (read school fee paying parents) took a never before seen beating. School managements, I thought, ought to give big Covid-19 discounts. Most schools, as on the date of this report, have cancelled fee hikes – however very few have offered discounts. Will come back to the schools a little later.

Cashflow 1

Two weeks ago, a friend, Pushpa, called to enquire if we knew where to buy or lease a laptop, as her kid, aged 6 years, was about to start her online classes. Pushpa was working as a teacher in a pre-nursery but owing to the birth of her second child she had to quit her job. Her husband who happens to be a small private civil works contractor is the sole bread winner. During the pre-corona days he could make around Rs. 20,000 per month but since March that has dwindled to almost zero. That is a huge impact on low income households. However, aspirations of Pushpa remain unblemished. She wants the best possible education for her kids. During January she got her daughter admitted to a “Good” private school where the fee runs into few months of her husband’s gross earnings.  I loved the positivity this lady projected despite falling incomes. “I want a bigger screen for the online classes – my daughter cannot see the power point presentations clearly on a five-inch screen mobile” – she said.

A used laptop would cost her anywhere between Rs. 15,000 – 20,000 and a new one around Rs. 35,000, I told her after enquiring with a couple of known dealers. She chose to go for a new one, but she was in no position to make full payment at once. The cost of the laptop is one and half months to two months her current household income. That is not a small hole to fill. Thousands of parents are under similar financial stress in pursuit of a bigger screen for their kids’ classes. But they are borrowing from relatives, friends, and breaking FDs to fund the purchase of bigger screens. Fortunately, a classmate of mine runs a Computer leasing business in Koramangala. Kiran, a good Samaritan that he is, offered to lend a Dell laptop for two months, free of cost and offered to extend six months credit for the purchase a new laptop. Not everyone is as fortunate as Pushpa, thousands of parents are staring at the gaping hole Covid-19 created.

Pushpa’s Monthly Cashflow Statement ( ‘000s) Pre-Covid Covid
Income 20 10
Expenses 18 18
Rent 10 10
Food 5 5
Others 3 3
Excess/(short) 2 -8
Capex – Laptop   35
Borrow from relatives   -43
Pushpa’s Monthly Cashflow Statement ( ‘000s)
Pushpa's Monthly Cashflow Statement


Cashflow 2

Conventional wisdom has been that Education sector is one of the most profitable businesses out there – especially for the classes till twelfth, the tuition fee costing more than the traditional bachelor’s degree. So – schools must have enough reserves for the winter which should be used give discounts.  

I shared my conventional wisdom with a friend who works as CFO of IB/ICSE curriculum school based out of Bengaluru. The situation is not very cushy out there, I was told. He argues that its hard to maintain top class facilities and continue to pay the staff without fee income rolling in. Schools in the city run on high operating leverage – in simple English at remarkably high fixed costs. Fixed costs could range anywhere between 80% to 90% of the total costs. I said, when you are running online classes there must be huge savings in electricity, maintenance, repairs, staff meals etc. Why don’t you pass on that savings to the students?  – the operating surplus can be shared, I insisted. He took a pause and pulled out another excel sheet and quipped “ we have done the analysis” – the savings is not much as we have to maintain our pools, sports grounds, buildings and most importantly we are paying salaries to all our staff. Schools like ours have to keep reinvesting in facilities every four to five years. And there are some segments like pre-nursery where in the question of online classes does not make any sense. Consequently, admissions in this segment have fallen drastically. All in all, there could be savings of around 10%. I could not audit his numbers – but had to take his argument at the face value. His voice showed worries of nightmares of cashflow management.

               Government of Karnataka has made it clear that the management cannot insist the payment of school fees. Many schools have sent the fee request to parents – however are not insisting on immediate payment thus complying with the Government norms. Some school managements have asked the parents to provide proof of their financial distress to provide additional time for payments.

His answer was they are not operating at their full capacity hence full fee is a must to sustain. It also means well established schools have enough cash balances to ride out the Covid-19 wave.

Unlike Pushpa none of the schools I contacted were ready to share the numbers. But I did get hold of a few school numbers through grapevine. Table below give out only costs and profits as a percentage of revenue (google Common Size Statements). Schools without the burden of debt and depreciation (read charge for investments in building, computers i.e, Fixed Assets) make around 30% to 50% cash profits. We accountants call it EBITDA. And that ratio is a favourite one among financial analysts, investors in evaluating a business.

Well Established School’s Cashflow %
Revenue 100%
Monthly expenses  
Rent 18%
Staff Cost 46%
Teaching 35%
Non-Teaching 12%
Maintenance 10%
Cash Profit/(Loss) – EBITDA 26%
Well Established School’s Cashflow

By the time I completed this article, Karnataka High Court had ruled against Government of Karnataka’s ban on online classes. High court said it is against the spirit of Right to Education. Many parents think the initial ban order was not a well thought out one. Parents feel online school classes are a great way to keep their little ones “gainfully” occupied. A petition on petition was used to push the government to roll back the ban. Online school classes would any day be better than noisy cartoons blasting out of the TV screens – many parents opine.

But many other parents believe online classes are being used as a pretext to collect fees. They blame school managements of being insensitive in the current crisis times.

Cashflow 1 and Cashflow 2 are two different dimensions of the current crisis. Then there are stories of teachers losing jobs. Anitha and Nagaveni (names changed), two Montessori graduates received their job offers in the month of March from an upcoming Montessori school in the suburbs of south Bengaluru. The salary was a decent figure of Rs. 16,000 per month, which solved many of their financial problems. These housewives in their late thirties were super excited to get into a new role after diligently performing their duties as home makers for close to two decades. The year 2020, they thought would give them financial freedom for the first time in their lives. But Covid-19 had different plans. Anitha’s offer has been pulled back as of first week of June. And Nagaveni’s calls to the Montessori school are met with silence. She believes her job offer is no more valid. Much aspired economic independence of these two women must wait for some more time. No one knows how long.