VestFire — financial independence methodology

Objective

To answer "how much do I need" from a household's own cash flows rather than from a multiple imported from a different country's market history.

Inputs

• Current age, target age for work becoming optional, and planning horizon.
• Household spending, broken into categories where provided: housing, healthcare, education, lifestyle, and fixed liabilities such as an EMI.
• Current invested assets and monthly investment.
• Goals: amount, date and category.
• Expected post-retirement income: rent, pension, business, annuity, with the periods they apply.
• Target asset allocation through retirement, and the chosen confidence level.

Calculation

1. Project expenses. Each category is compounded at its own inflation rate to each future year. Fixed liabilities are held flat and terminate on their stated date.
2. Reserve goals. Each goal is compounded at its category's inflation rate to the year it falls due and treated as a separate liability in that year, not averaged into monthly spending.
3. Net income. Post-retirement income streams are applied for the periods they cover, reducing the withdrawal required in those years.
4. Gross up for tax. Each year's withdrawal is increased so that the post-tax amount reaching the household equals the requirement, applying equity LTCG above the annual exemption and slab-rate treatment for debt.
5. Simulate. Thousands of ordered return and inflation paths are generated from India-specific assumptions and the cash flows run across each.
6. Solve. The reported corpus is the smallest one that funds every year of the plan in at least the chosen share of simulated paths.
7. Stress-test. The same corpus is re-run through 2008-style and 2020-style drawdown sequences and a stagflation decade, and the outcome reported separately.

Interpretation

The confidence level is the investor's lever, not a hidden constant. 90% means the plan is funded in nine of ten simulated futures; it does not mean a 90% probability, because the simulation is over a model rather than over reality.

The 25× benchmark is shown alongside for reference, and the difference between it and the computed number is itself informative.

The result is a Vestmind calculation from stated inputs and assumptions. It is not a prediction and not personalised advice.

Assumptions

• Return and inflation distributions calibrated to Indian market history are a reasonable model of the future.
• Current tax rates and exemptions persist, or change in ways not systematically adverse.
• Stated spending, goals and income are approximately complete.
• The investor holds the stated allocation through the horizon.

Limitations

• A simulation calibrated to history cannot contain a future that history does not. The confidence level is confidence in the model, not in the world.
• Tax policy changes, and a forty-year plan will outlive several tax regimes.
• Healthcare costs late in life have a long right tail that a category inflation rate models poorly.
• The result is extremely sensitive to the spending figure entered. An understated household budget produces an understated corpus, and no amount of simulation corrects for it.
• It says nothing about whether the investor will want to stop working.

Sources

• Income Tax Department, Government of India — capital gains treatment
• Securities and Exchange Board of India (SEBI)

Related

• The Vestmind methodology library
• VestFire — Financial independence planning for India
• The Vestmind knowledge hub