Die Broke Retirement is one of method to

calculate how much money that we need to

save for retirement fund. When retire you
slowly take the interest and a small part of
your principal. When you die you have
taken all the principal. No more money left.

Retirement Fund :
Die Broke Method
Financial Planning

Ainia Putri Ayu Kusuma

19011024
October 1st, 2013

Die Broke Retirement Method

19011024 - Ainia Putri

Case

Dude Herlino, 30 years old, has one wife and two children, works as entertainer artist with IDR 25 million
monthly income. He wants to retire at 55 year old. Based on family history the life expectancy is 67 year
old but his wife expect that he can live until 70 year old. He does not have any pension from his current
work. Inflation can be assumed at 6 %.
Calculation:
Income

: IDR 25 million per month

Living Cost

: IDR 18 million per month

Retirement Age

: 55 year

Current Age

: 30 year

Life Expectancy

: 70 year

Time available for saving

: 55 30 = 25 year

Pension time

: 70 55 = 15 year

30 years old

active (saving period)

25 year

55 years old

retired

70 years old

15 year

The living cost for the next 25 years (55 years old). Assume that our living cost in retirement time will be
lower than current cost. It is about 75% of current living cost.
Present value

= IDR 18 million

Inflation

=6%

Time

= 25 years

Living cost at the retirement time

= 75% PV (1+i)n
= 75% x 18.000.000 (1+0.06)25
= 57.940.254 million per month
= 58 million per month (rounded up)

Living cost at the retirement time for a year

= 12 x IDR 58 million = IDR 696 million per year
Assume that the return of investment is about 15%

Spreadsheet for Die Broke Method

Age

Retirement Period

Principal

Interest (15%)

Cost of Living Expense

Remaining Principle

Principal x Interest

PV (1+r)n

Principal + Interest - Cost

of Living Expense

55
56

IDR 5,455,682,726.20

IDR 818,352,408.93

IDR 696,000,000.00

IDR 5,578,035,135.13

57

IDR 5,578,035,135.13

IDR 836,705,270.27

IDR 737,760,000.00

IDR 5,676,980,405.39

58

IDR 5,676,980,405.39

IDR 851,547,060.81

IDR 782,025,600.00

IDR 5,746,501,866.20

59

IDR 5,746,501,866.20

IDR 861,975,279.93

IDR 828,947,136.00

IDR 5,779,530,010.13

60

IDR 5,779,530,010.13

IDR 866,929,501.52

IDR 878,683,964.16

IDR 5,767,775,547.50

61

IDR 5,767,775,547.50

IDR 865,166,332.12

IDR 931,405,002.01

IDR 5,701,536,877.61

62

IDR 5,701,536,877.61

IDR 855,230,531.64

IDR 987,289,302.13

IDR 5,569,478,107.12

63

IDR 5,569,478,107.12

IDR 835,421,716.07

IDR 1,046,526,660.26

IDR 5,358,373,162.93

64

IDR 5,358,373,162.93

IDR 803,755,974.44

IDR 1,109,318,259.87

IDR 5,052,810,877.50

65

10

IDR 5,052,810,877.50

IDR 757,921,631.62

IDR 1,175,877,355.47

IDR 4,634,855,153.66

66

11

IDR 4,634,855,153.66

IDR 695,228,273.05

IDR 1,246,429,996.79

IDR 4,083,653,429.91

67

12

IDR 4,083,653,429.91

IDR 612,548,014.49

IDR 1,321,215,796.60

IDR 3,374,985,647.80

68

13

IDR 3,374,985,647.80

IDR 506,247,847.17

IDR 1,400,488,744.40

IDR 2,480,744,750.57

69

14

IDR 2,480,744,750.57

IDR 372,111,712.59

IDR 1,484,518,069.06

IDR 1,368,338,394.09

70

15

IDR 1,368,338,394.09

IDR 205,250,759.11

IDR 1,573,589,153.21

IDR -

The Steps to Calculate How Much Principle of the First Retirement Period

1. Assume that :
a. The column of principal

=A

b. The column of Interest

=B

The formula:
= Interest x Principal
= 15 % x A = 0.15 A
c. The column of cost of living expense

=C

C has been calculated with future value formula

d. The column of the remaining principal

=D

D=A+BC
In the last period, A = 0
2. Calculate the number of a in the last period of retirement
D

=A+BC

= A + 0.15A C

= 1.15A C

C+D

= 1.15 A

= (C + D)/1.15

Example, in the last period

A

= (1,573,589,153.21 + 0)/1.15
= 1,368,338,394.09

The principal in the last period is equal to the remaining principal (D) in 14th period. So, we
can copy the principal in last period in and paste into the remaining principal (D) in 14th period.

Then, the formula of the principal in 14th period is the same with in the last period.
A (principal in 14th period)

= (1,484,518,069.06 + 1,368,338,394.09)/1.15
= 2,480,744,750.57

Repeat the formula with drag and drop to the first period (using Ms. Excel), so we can get the
principal in the first period, which is 5,455,682,726.20

So, with die broke method, we can find that the principal in the first period retirement is
IDR 5.5 billion (rounded up, living cost IDR 696 million per year, inflation 6%, return 15%)