November 28, 2009

Early Retirement and Social (In)Security

Many professionals in the corporate sector, who enjoy handsome take home salaries today dream of early retirement. The thought of being free from client and performance pressures and the lure of chasing down all those hobbies that one had to sacrifice at the alter of the corporate employer is extremely seductive. But an early retirement would mean that one should have a corpus of money that should be enough to cover the household expenses for the rest of ones life and that of the spouse. So how much money must one have on retirement day so as to sustain the lifestyle that one is accustomed to ?  How should one calculate what is required ?

Consider the following points
  1. Inflation will increase your household expenses every year ? And this increase is not a simple linear expenses. It will follow the compound interest law. 
  2. Your corpus will also grow as per the compound interest law.
  3. Interest rates are corelated to inflation. When inflation goes up, so does interest rates but the increase ( decrease) in interest rates will not be the same as the increase ( or decrease ) in inflation rates. In general post tax interest rates on risk free investments will be lower than inflation.
  4. Inflation and interest rates do not remain constant and the best assumption that one can move is that they will move cyclically between a maximum and minimum rate. You would need to make a call on what the maximum and minimum will be for both interest and inflation. You will also have to make a call on how long would each economic cycle would be. 
  5. Finally you will have to take a guess on how long you ( and your spouse, if you have one ) will live.
Based on this information you can calculate
  1. How much money you will need in a particular year after your retirement
  2. How much money you must have today to fund the expenses of that specific year
  3. Sum this up for each year that you expect to live.
The Retirement Planner spreadsheet that I have created will allow you to play with all these parameters and decide for yourself if you will have enough money when you plan to retire. Do note that this assumes that you have no major capital-type expenses like purchase of dwelling, vehicle, marriage or higher education of children or that grand visit to the Bahamas -- that will have to be provided for separately.

My current sheet shows that if you plan to retire TODAY and expect to live another 25 years and if your current household expenses are around Rs 90,000/month then you will have to have Rs 5.3 crores in liquid assets today if you want to maintain your current living standards.

This spreadsheet is in GoogleDocs. If you have a Google account  you can copy or otherwise you can download it as an OpenOffice or Excel spreadsheet and play with it. Happy Retirement Planning.

P.S. If you spot any obvious bugs in the sheet, please let me know. Shall fix it and acknowledge the same.

PPS - Have added an extra feature in which there is a small probability that on some years there will be an additional unforeseen expenditure. [ updated June 2015]

November 17, 2009

The Recursive Meta-Incompetence of the Indian State

Now that I have grabbed your attention with a couple of big and high sounding words let me justify their use in the title of this post.

In any discussion of the Indian State, the first image that pops into our mind is that of the parade with which our armed forces salute the State -- through the person of the President -- on Republic Day. The spectacular nature of this parade, the precision with which the contingents -- both military and civilian ones -- walk, move, act and enact various scenarios is of course something to be proud of but the tragedy of the parade lies in the fact that it has no relation to the way the State actually works outside the parade route. Were we to move away from Rajpath and step into the dungeons of any sarkari daftar, the reality that will confront us is terrifying. Decrepit and stained with betel juice and with piles of dusty files covering innumerable empty desks, government offices -- whether central, state, municipal, panchayat or public sector corporates -- present a uniform image of lethargic indifference to the process of administration, governance or management. A few locations -- perhaps the offices of the uber-senior officers in government, or those of some PSUs -- may try to be different but that is only as far as looks go. If you look any deeper -- behind the feeble spit and polish -- the picture is an equally grim image of archaic and anarchic incompetence masquerading as indifferent authority.

Incompetence is the authoritative word here. It does not need a rocket scientist ( and I have always wondered why rocket scientists are brought into such discussions ! a molecular biologist would have done just as fine ) to figure out that the State is incompetent. Just in case you thought otherwise there are umpteen examples of simple projects taking just too long to finish or not being finished at all. While China has built the railway through Tibet we are still planning one in Sikkim and Arunachal whereas we had the expertise to build the Darjeeling Himalayan Railway in the last century ! Forget about railways in the Himalayas, we cannot even build a 200 feet culvert on Bakrahat Road ( 5 kms from Calcutta ) in the last two years. Or forget about roads .. we cannot even make sure that a letter from Prime Ministers office reaches that of the Chief Minister in time for him to attend a meeting in New Delhi. Pervasive incompetence : you see it in the eons that it takes for a municipal tax bill to be corrected for errors, for tax refund to be paid in time, for .... and the list go on and on ab nauseam.

In an earlier post I had argued that even if a government employee were to be not incompetent, the framework of authority, responsibility and trust within which government operates would ensure that nothing happens on schedule, within budget and meets quality standards. This was a view from the outside, but now that I am a part of the system and have a worms eye view of things, I would veer around to the view that competence is sorely in short supply over here !

Are people in the government sector less competent than their counterparts in the corporate world ? Trying to answer the question is like opening a can of worms because it causes egos to be bruised rather badly but to be diplomatic -- and perhaps correct -- about it would be to state that the fraction of competent people in the public sector is less than the fraction of competent people in the private sector.

Is this corporate arrogance ? Not really. We can look at umpteen examples but a good place to start as any would be the usage of computer technology -- or even something as simple as email -- in an office environment. This comes most naturally to even the most smallest of the private organisations but is a great rarity in the rarefied atmosphere of a government office. Most people in government would consider it beneath their dignity to read and respond to email but in reality it is more often than not beyond their ability to be online and proactive in responding to missives. Inability to use email or other technology is just one of the many instances of inefficiency or incompetence -- there are hundreds of "best practices" available in the world of that can lead to significant performance improvement but they find no place in the world of government office.

Why ? One quick answer could be corruption -- because efficient, elegant and transparent practices can root out corruption and that would not be in the interest of the various vested interests that inhabit these offices. But corruption is a part of the larger Indian story and not the subject of this article.

So if we ignore corruption why is it that government continue to perform at this abysmal low level of efficiency ? We go back to the original hypothesis that says that a statistically larger percentage of government employees are inefficient and incompetent. But how can that be ? We all come from the same demographic or genetic pool ! In the same family one brother works competently in the private sector and the other is a lethargic sarkari babu ?

The answer could lie in the fact that competent people are reluctant to join the government or if they do join, they would like to leave as soon as possible. It is like the process of diffusion in a gas-centrifuge that is used for Uranium enrichment where the heavier atoms get separated from the lighter atoms and we have different concentrations of U238 and U235 in different parts of the spinning container. So is the case here -- the surge and swell of society ensures that more of the smarter people stay outside the government than inside and so competence and efficiency is found in greater abundance outside the government than inside.

This is where the recursion kicks in. As more of the competent people choose stay out, the less competent and effective do government departments become ... and this drives out ( or keeps out ) even more competent people. This is a vicious cycle, a downward spiral that becomes worse and worse -- so there is really no hope for it to recover and so no incentive for any competent person to try and fix things. A normal incompetent person can sincerely try to improve his competence -- by seeking assistance with new tools and techniques -- but in this case the incompetence of the organisation is such that it cannot overcome its own incompetence. So it tend to take refuge in denial, bluster and false bravado -- who says government is incompetent ! I will pull his tongue out ! and take him to the equivalent of a privileges committee !!! This is meta-incompetence -- he who knows not and knows not he knows not is a fool, avoid him -- that is what smart people will do.

Is there a way out of this recursive meta-incompetence ? Is it possible for visionary, a crusader who can come in and fix the problem by the force of his personal leadership ? Can we not say that "as is the prince, so are the people" ? Sam Pitroda tried and got us going on the telecom but he could not do anything about the DoT/BSNL/MTNL and the sarkari telecom organisation. Perhaps there are other examples but none that has been anything close to successful and in the end we would have no option but to agree that "as are the people, so will be the prince" -- the system will finally get you.

But Sam left us with one great lesson : if you cannot redesign the sarkari organisation make it irrelevant so that we do not have to suffer at its hands. We do not mourn the death of BSNL, we celebrate the success of Bharti and Reliance !

That could be our only hope of escaping from the clutches of the recursive meta-incompetence that plagues the Indian state. Let us get the state out our lives. It is on its way out in industry and it would be wonderful if it could be shown the door in education, medical services, municipal services and -- some day -- out of judicial, [ see also this], taxation and security services.

We shall overcome our state, some day. Not like the Maoists with guns and murder but with bold ideas that can change the future.