And in the end, it’s not the years in your life that count. It’s the life in your years. – Abraham Lincoln
The world is becoming an increasingly old. Life expectancy has been increasing. As a result, many people find themselves not fully prepared for a long retired life. Preparation for retirement should ideally be planned at two levels:
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Preparation at personal level:
If someone has had a fruitful busy life, he/she suddenly finds lot of free time. In the absence of a proper idea what to do, we can get frustrated easily. As we all know, an empty mind is devil’s workshop. No wonder it is said that a retired person is a full-time job for his wife. So, it is essential that we plan what will we do once we get retired. Secondly, we should also make a plan for coping with loss of power. Sometimes, loss of power may be related to how someone responds to our suggestion or request. Sometimes, loss of power may be related to our physical condition also. The best way is to adapt and move forward. We shouldn’t dwell on glorious past. Best way is to adapt and move forward.
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Financial planning for retirement:
Gone are the days of government guaranteed inflation linked life-long pension. Now we have to make financial plan for our retirement ourselves. The good thing is that there are far more options available these days to choose from. If one is diligent and systematic about retirement planning, financial well-being upon retirement can be taken care of.
Now there is no perfect way but a few steps below will give some ideas about how we can go about planning for retirement:
How much will it cost to live a comfortable life?
In the table below, I show how many times of our current annual expenditure we will have to spend to maintain the current lifestyle. Obviously, the composition of expenditure will change as we age. A person in 40s will be spending more on kid’s education, rent whereas a person who has retired might be spending more on healthcare. The below table aims to give an appreciation of the impact of inflation. We can look around and see how much it costs for a retired person to live comfortably now. Once we get that number, we can multiply it with an appropriate factor from the below table:
Planning for medical issues
Prevention is better than cure. Medical expenditure is rising at a faster pace. Healthcare inflation is in low double-digit in India. If one took a health insurance policy earlier in life, it makes sense to continue with the same. Maintain proper medical records and generally be physically active (as far as possible) to maintain good general well-being. It will also be good to maintain some easily accessible cash for medical emergencies.
Don’t be asset rich but liquidity light
I have seen many retired people who have amassed huge assets but don’t have too much easily available cash for emergency. For example, someone has a 2 crore flat in Mumbai and that fetches good monthly rent but if he needs, for example, 30 lacs due to some emergency, he will be in a difficult situation. Hence, asset allocation is very important. Ideally, on retirement:
- Maintain cash equivalent to at least 5-years’ worth of expenditure in fixed deposit or debt mutual fund, that can be accessed quickly.
- Maintain some cash for medical emergencies as well.
- Try to be totally debt-free.
These are some initial thoughts. Remember, you can be young without money but can’t grow old without money.
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