How to build a Retirement Arithmetic Sheet

A retirement arithmetic sheet is seven steps. The household writes what it spends now, then what it would spend when the income stops. Next come the years until then and the years after. Every scheme already running goes down with what goes into it. The two assumptions are chosen and written out. The gap is computed. A date to redo the whole thing is fixed last.

The sheet exists because the alternative is carrying four figures and two assumptions around in somebody's head, where the assumptions quietly stop being assumptions and turn into facts. Nobody notices that happening. A rate gets picked on a Tuesday evening because it seemed a fair sort of number, what it implies gets worked out, and by the following spring the answer is still in the notebook and the rate that produced it has gone. Writing both on the same sheet is the whole discipline of this exercise, and it is the single thing that makes the sheet worth redoing rather than admiring.

Why each step works is covered separately. Four neighbouring subjects have their own treatments: what retirement actually costs, how a provident fund accumulates, what an assumed rate does to a figure twenty four years out, and what a scheme is and who supervises it. Repeating any of them here would bury the order under the explanations. The order is the whole of what the seven steps add. Seven instructions, in one sequence, ending in a number and a date.

What is a retirement arithmetic sheet, and what does it produce?

Start with what comes out of the far end. A finished arithmetic sheetOne side of paper carrying the figures, the assumptions and the gap. All three can then be read together rather than remembered separately. is one side of paper carrying four figures, a list of what is already running, a boxed set of assumptions in the household's own words, one gap and one date. The whole of it is written by hand more often than not, in an evening. The output of the seven steps is a gap and a date, and not a plan, a product or a decision.

Think about how a household works out whether it can make a wedding happen. Somebody sits down with what the hall costs, what the caterer quoted per plate, how many people are coming and what is in the recurring deposit, and the figure that falls out of the bottom is what is short. The shortfall is not a plan for raising it. The shortfall is the size of the thing, written down, and every conversation afterwards is then about an amount instead of a mood. The retirement sheet does the same job over a longer stretch, and it only feels harder because two of its inputs are guesses rather than quotations.

Three confusions stop people building a sheet, and naming them plainly at the start clears all three. A sheet is not a forecast. Two of its inputs cannot be known, and the sheet says so on its face. A sheet is not a product comparison, and nothing written on it names anything anybody sells. And a sheet is not a verdict on anybody. The gap measures a position on one particular evening rather than describing what the household did or failed to do in the twenty years before it.

The seven steps run in one order, and only one pair cannot be swapped. Steps one to five can be done in whatever sequence suits the papers to hand. The arithmetic has nothing to work on until somebody has chosen the two rates it runs on, and step six therefore comes before step seven. Five of the seven steps only copy or combine figures that already exist in the house, and just two ask the household for something it does not have.

Step one: what does the household spend now, and where does that figure come from?

The top line carries what leaves the household in an ordinary month. Not what it earns, not what it thinks it ought to spend, and not a budget. Only what actually goes out, in a month with nothing unusual in it. If that figure has already been worked out for any other reason, it is copied across and the step is done. The figure is not computed again, and it is not improved while it is being copied.

The Bhosale household, invented for teaching, wrote Rs 42,770/- a month, at 31 March of year two. The household did not work that out this evening. The figure came from the work it did on how long it could survive an interruption in earning, where the same number was needed for a completely different purpose, and it is on a sheet in the same drawer. Step one is a copying job, and treating it as one is what keeps the whole evening to an evening.

Two things people get wrong here, both understandable. The first is starting from income, the figure everybody knows by heart. Income is not on this sheet at any step: what matters is the outflow that carries on once the inflow has stopped. The second is writing an aspirational figure, the spending the household means to get down to. An aspirational figure produces a smaller number at step one and a smaller gap at step seven, and the smallness is fictional.

If nobody in the house has ever added the month up, this is the one step that costs real time, and it is worth it. Take the last three months of whatever record exists, bank messages, the passbook, the notebook by the till, and use the middle one rather than the smallest. A household that has never counted its own month is in the ordinary position, and the counting is the same work at thirty or at fifty five.

Step two: what would the household spend once the income stops?

On the second line, write what the household would spend in a month after the earning has stopped, priced at what things cost today. Beside it, write why. Not a paragraph. Three or four short lines in the household's own words, saying which things fall away and which grow. The reasons are part of the entry, and a step two figure written without them is a number nobody can check next year.

The Bhosale household wrote Rs 30,000/- a month, in today's moneyPriced at what things cost now, before any allowance has been made for prices rising between now and the date the money is needed., against the Rs 42,770/- on the line above. The household wrote four reasons beside it: the school terms will have ended, the two-wheeler loan is long gone, one person less is being supported, and health spending will be higher rather than lower. Rs 30,000/- a month is Rs 3,60,000/- a year, and that annual figure is what step seven will use.

Notice what the four reasons do. The reasons are not a defence of the number. The reasons are a record of the picture in somebody's head on the evening the number was chosen, and next year that picture will have changed in ways nobody would otherwise be able to name. The reasons beside the figure are what let a future reader argue with the estimate instead of merely inheriting it.

People stall badly at this step, and the stall has one cause: they are looking for the right figure, and no right figure exists. There is no lookup, no table, no percentage of current spending that is correct. The figure is an estimate, it will be wrong, and it is still enormously more useful than the alternative. The alternative is no line at all. The figure that goes down is one somebody could defend for five minutes to another person in the house, with the date beside it.

Step three: how many years are there until the income stops?

Write the number of years between today and the date the earning is expected to stop. For somebody in a job with a fixed retiring age, that is subtraction from a date of birth and takes ten seconds. For somebody running a counter, a stall or a practice, there is no fixed date at all, and the instruction changes shape: write the age at which the household expects that person to stop or to slow down enough that the income is no longer what it is now, and mark it as a judgement rather than a fact.

Meghna Bhosale is 36 at 31 March of year two and would reach 60 in 24 years. Twenty four years is step three for her side of the household, and it is the least arguable figure on the whole sheet. Ashok Bhosale's tailoring counter has no retiring age written anywhere. An empty line at step three quietly becomes a zero at step seven, so the household wrote its own view beside his line instead of leaving it empty.

Step three is the exponent in everything that follows rather than a term in it, and it therefore matters far more than its ten seconds suggest. A goal twenty four years out and a goal eight years out are not the same goal with different sizes. The two goals respond completely differently to every assumption written at step six. The number of years sits on its own line, where it can be seen changing at each rebuild rather than buried inside the arithmetic.

Step four: how long must the money last, when nobody can know the answer?

Write the number of years the money is expected to have to cover after the income has stopped. Then write, in the margin beside it, that nobody can know this figure. Both halves are the instruction. The figure without the note is a false fact on the sheet, and the note without a figure leaves step seven with nothing to multiply.

The Bhosale household wrote 25 years, taking it to 85, and marked it as its own judgement. Nothing produced that 25. No average and no projection stands behind it. The household wrote down its own view, and the arithmetic runs on that. Step four is the only line on the sheet that is openly a guess, and marking it as one is what stops the final gap being read as a measurement.

A discomfort in this step makes people put the pen down, and the discomfort is worth naming. The step asks for a number for how long somebody expects to live, and then hands that number to arithmetic. The way through is that nothing is being predicted. The choice is how long the sheet should be asked to cover, and choosing is a different act from predicting. A household that writes a longer stretch is asking a harder question of its own arithmetic, not making a claim about anybody's health.

The two durations behave differently, and they sit on separate lines for that reason. Step three has an edge somebody else set, printed in the terms of a job or fixed by the household for a counter that will slow rather than stop. Step four has no edge at all. Redone in a year, step three has fallen by one and step four has almost certainly not moved, and watching that happen is teaching the sheet does by itself.

Step five: which schemes go on the sheet, and what goes into each?

List everything already accumulating for the far end, with three columns beside each entry: what the balance stands at today, what goes into it each month or each year, and who puts that in. Every arrangement gets a line, however small the balance is and however long ago anybody last looked at it. Balances that feel too small to matter are exactly the ones that go missing, and a sheet missing a line at step five produces a gap at step seven that is wrong in the direction nobody checks.

A schemeAny arrangement that is already accumulating money towards the far end, whether or not anybody is paying into it this year. here means any arrangement of that kind, not a product anybody was sold. In this country the lines most households would write are an Employees' Provident Fund where there is an employer, a Public Provident Fund, a National Pension System account, gratuity where a job carries it, and anything else set aside for the same purpose under whatever name the house uses for it. Each of those arrangements accumulates under its own rules, set out under the arrangement's own name.

The Bhosale household wrote three lines. Meghna Bhosale's provident fund through Sahyadri Freight Services Private Limited, showing a balance of Rs 4,12,000/- at 31 March of year two after eleven years of service, with Rs 6,240/- a month going in: Rs 3,120/- deducted from her pay, and Rs 3,120/- shown separately on the statement as the employer's side. The household's Public Provident Fund at Rs 84,000/-, with nothing put in during year two. And the tailoring counter, carrying nothing at all, written as a line rather than left out.

Two of those three entries are worth pausing on. The provident fund had never appeared on this household's sheet of what it holds. The earlier sheet carried what the household could reach, and this balance is not reachable. The balance exists, it grows every month, and it belongs here for exactly the reason it was left off there. And the Public Provident Fund's blank year goes on as an uncontributed yearA year in which nothing went into an arrangement, written on the sheet as a nil so that a later reader can see the year rather than assume it was ordinary. written in as a nil. A year with nothing in it is information and a blank space is not.

What does step five look like for a household with no scheme at all?

Step five looks like one line, and the line says none. One line is the whole instruction, and a great many households are in exactly that position. If nobody in the house has an employer, or the work is a counter, a stall, a practice or a piece of land, there is no monthly deduction, no employer side, no gratuity and no statement to look up. Step five takes ten seconds and produces a nil.

A nil is the ordinary position in this country rather than an unusual one. Most people working here are not on a payslip, and the arrangements that get talked about most in writing about retirement are the ones fewest people are attached to. A recorded nil at step five is a complete and correct entry, and it does something a blank line cannot: it tells the person reading the sheet next year that the question was asked and answered rather than missed.

Inside the Bhosale household both positions sit side by side. Meghna Bhosale meets a provident fund every month whether she thinks about it or not: Rs 3,120/- leaves her pay and another Rs 3,120/- is added by Sahyadri Freight Services Private Limited, and eleven years of that is why the balance is Rs 4,12,000/-. Ashok Bhosale meets none of it. The counter has no employer, no statement and no scheme of any kind. One sheet, one house, two different lines at step five.

Nothing at all follows from a nil. The sheet does not respond to a nil by recommending anything. The sheet carries the nil forward into step seven, where the gap comes out larger than it would have otherwise, and it stops there. The household decides what to do about that gap, including deciding to do nothing this year, and nobody else decides it.

Step six: where do the assumptions go, and in whose words?

A box goes on the sheet. Inside it go the rates about to be used, in ordinary language, with the date they were chosen and a line recording that they were chosen rather than looked up. Two entries are enough for most households: what is being assumed about prices rising between now and then, and what is being assumed about anything the household holds growing in the meantime. The box goes on the same side of the paper as the figures. Not overleaf, not in a different notebook, not in a spreadsheet cell three columns to the right.

An assumptionA figure chosen rather than looked up, and it moves the answer. Two people can choose differently and both be reasonable, so the choice is written down rather than remembered. is not a forecast and it is not something anybody can supply from outside the household. Nobody can say what prices will do over twenty four years, and anything that offers a household a figure for it is doing something other than teaching. The sheet asks for something far more modest: a choice, written down, with the answer carrying that choice visibly beside it.

The Bhosale household wrote two lines in its box. The first: that whatever it holds grows at the same rate that prices rise, so the entire sheet can stay in today's money. The second: that Rs 6,240/- a month keeps going into the provident fund until Meghna Bhosale is 60, and that nothing else is added. Beside both, the date the choices were made, and a sentence in the household's own hand saying that both were chosen by the two adults in the house and given to them by nobody.

The first of those choices is doing a lot of work and deserves a sentence. Assuming the two rates match is not a claim that they will match. Matching the two rates is a device. When the two move together the whole sheet can be worked in today's money, on one side of paper and checkable with a pen. Change either rate and every figure below the box moves, and that is precisely why the box sits above them rather than in somebody's memory. A household that prefers to assume the two differ can do that instead, and the sheet then needs compounding at two separate rates rather than the arithmetic below.

Why do the assumptions go on the sheet rather than into the arithmetic?

Because an answer outlives the memory of what produced it, and it outlives it by a very long way. Six months after the evening, the gap is still legible on the sheet and the two rates behind it are gone from every head in the house. Somebody looks at the sheet, reads the gap, and treats it as a fact about the household rather than as the consequence of two choices made on a Tuesday. The lapse is not carelessness. Every number separated from its inputs goes the same way, and it goes that way for trained people with spreadsheets exactly as it does for a household with a notebook.

There is a second reason, and it is the one that makes the sheet useful rather than merely honest. A boxed assumption can be changed on purpose. With the two rates in the box, a household can cross out one line next year, write another, and rerun the arithmetic in ten minutes knowing exactly what moved and why. Buried in the working, the only options are to accept last year's answer or rebuild from nothing. An assumption that can be found is an assumption that can be revised; one that cannot be found has quietly become a fact.

The same thing happens in an ordinary form. Somebody says the electricity bill is about Rs 2,200/- a month, and that figure gets used for two years after the tariff changed and the old air cooler was replaced. Nobody lied. The figure was carefully arrived at once, it stopped being marked as an estimate, and it went on being used as a fact. The box is the sheet's defence against exactly that, applied where the consequences are largest.

Step seven: what is the gap, and what date goes beside it?

Subtract what is already running from what the sheet says is needed, write the difference at the bottom, and write a date beside it. Writing those three things is the last instruction. The subtraction runs on the assumptions in the box and on nothing else. An empty box means step seven cannot be done at all, and that is the one ordering in the seven that cannot be reversed.

Here is the Bhosale household's step seven in full. Step two said Rs 30,000/- a month, so Rs 3,60,000/- a year. Step four said 25 years. Because the box assumed that what the household holds grows at the same rate prices rise, the whole calculation can stay in today's money, so what is needed is Rs 3,60,000/- multiplied by 25. Against that sit the three running lines, on the same assumption: the Rs 6,240/- a month going in over 24 years, and the two balances already there.

Rs 67,06,880/- is the output of the evening. Everything already running covers just over a quarter of what the sheet asks for, and nobody in the house could have said that before the evening. The gapWhat the arithmetic says is missing, on the assumptions written down beside it. Change an assumption and the gap changes with it. is a measurement of a position on one evening, not a judgement on anybody, and it is only as good as the two lines in the box.

Now the date. Under the gap, write the day the whole sheet gets rebuilt, and pick a day the household already marks for something else, so nobody has to remember a new one. The Bhosale household wrote 31 March of year three, the day it already goes through its papers. A gap with no date beside it is a number in a drawer; a gap with a date is the first of a series, and the series is where the value in this exercise sits.

How does a household know the sheet is finished?

By a checklist rather than by a feeling. The feeling of having worked something out arrives long before the sheet is complete, usually somewhere around step five when the balances have been found and the evening has started to feel productive. Six things have to be on the paper, and if any one of them is missing the honest move is to name the missing line and stop there rather than to finish the arithmetic around the hole.

Read the six conditions below as a gate rather than as a summary. Two spending figures, now and later. Two durations, until and after. Every arrangement listed, including the ones that are nil. Both assumptions inside the box. One gap at the bottom. One date beside it. A sheet missing any one of the six is not a shorter sheet; it is a sheet whose answer nobody will be able to interpret in eleven months.

How long does the whole thing actually take?

One eveningWhat the whole exercise costs, because most of what it needs already exists somewhere in the house and only two entries have to be decided., and the estimate follows from the structure of the seven steps rather than from optimism. Steps one, three and five are copying: a figure from another sheet, a subtraction from a date of birth, and two balances from a statement and a passbook. Step two is an estimate the household may well have already made in some rough form. Step seven is four subtractions. Only steps four and six require anybody to decide anything, and both are decided by two people talking for twenty minutes.

The part that genuinely takes time is the part nobody counts: finding the statement. If the provident fund has never been looked at, or the passbook is in another town, that is a week of asking rather than an evening of arithmetic. The search is work done once, and it leaves the household knowing something about itself whatever the gap turns out to be.

Where there are no arrangements at all, the evening is shorter still. Step five takes ten seconds, step seven has nothing to subtract, and the gap is simply what the sheet says is needed. A household with nothing running can finish this sheet in under an hour, and the sheet it finishes is exactly as valid as one that took three evenings.

What is the sheet not, and what does it not decide?

The sheet is not a plan. A plan says what will be done, by whom and when; the sheet says how large the thing is, on what assumptions, as at a date. Everything a household might do about the gap lives outside the seven steps, and the sheet is complete without any of it.

The sheet is not a scheme comparison, and it never names one arrangement as better than another. Step five lists what exists; it does not rank, score or suggest. Where a household's money should go is that household's own decision, taken with the gap in front of it.

The sheet is also not a promise. The gap it produces is arithmetic on two chosen rates, and if either is chosen differently the gap changes by a great deal. A gap that moves is not a defect in the method. The movement is the reason the box exists, and a household that has understood the box will read its own gap as a size rather than as a destiny.

The sheet is worth having for one plain reason. In the year after the sheet is written, somebody will suggest something to this household: a relative, a colleague at the freight office, somebody at a counter in a bank. The household with a sheet meets that suggestion with a figure and a set of written assumptions, and can ask what it does to the gap. The household without one meets it with a feeling. The sheet does not tell anybody what to do; it makes it possible to have the conversation in numbers rather than in moods.

When is the sheet redone, and is it adjusted or rebuilt?

On the date written beside the gap, and it is rebuilt rather than adjusted. A clean sheet takes the seven steps again from the top. Opening last year's sheet and changing only the lines somebody happens to have noticed leaves every figure nobody noticed sitting at last year's value, including both assumptions, which are the two lines that matter most and the two nobody ever thinks to revisit.

The review dateThe fixed day on which the whole sheet is rebuilt from the figures rather than edited line by line. works best when it is a day the household already keeps for something else. The Bhosale household chose 31 March, because that is when it already goes through its papers, and a sheet attached to a date the house already honours gets read while one with a calendar of its own competes for attention and loses.

Rebuilding is where the sheet starts to teach. Step three has fallen by one year and step four almost certainly has not moved. The provident fund balance has grown by the year's contributions plus whatever was credited. The assumptions may be unchanged, in which case they are written and dated again, which is not busywork: it is the household confirming it still chooses them. A single sheet is a snapshot; the third one in a series is the only thing in this exercise that ever shows a household its own direction.

The Bhosale household, Meghna Bhosale, Ashok Bhosale, Ira Bhosale and Sahyadri Freight Services Private Limited are invented.
Educational material. Not advice on any investment, tax, budget or market position.