Planning just before retiring

There is a silent fear when we are near the magic age.. on how the next many years will be .. how the lifestyle will be and how to continue to be engaged in a good way

Retirement is not only about ensuring you have the right level of money to ensure a good lifestyle, it is also about how to be engaged in a fruitful way so as to not degenerate away. 

In our working world we are very very highly engaged.. Our life is our work. I know I work 15 to 16 hrs a day, with weekends also being mostly engaged. 

Unfortunately from such a hectic lifestyle, once a person retires, he/she has plenty of time in their hands with mostly no idea of how to fill it.

Here's what I am thinking of doing as I retire over the next decade.. 

1. Do some consulting work with large companies

2. Write a book

3. Join an NGO and help out to expand 

4. Maybe participate in the local politics

5. Be healthy with an active lifestyle

What about you.. What's your mantra

Early retirement.. some thoughts

Now days I see lots of articles in business magazines about people wanting to retire early.. or having retired early.

It's facinating to read their stories and how some people are living their dreams. All great things.

But let's understand when they say retirement what does it really mean. When I read some of these articles the people are not in a full time job but are still working but with their choice of roles and timings.

Getting financial freedom depends on a lot of things and some of them are below..

1.  Being clear on needs vs wants. Financial freedom means using the money one has saved or is earning passively is enough for keeping the family able to service the needs

2.  Defining what the family will pay for children's education . Outside of India usually education loans are taken by the children themselves since they are so expensive. In India parents usually want to save money and not let the children invest from their future cash flows

I have had a few friends who wanted to retire at the age of forty but never did.. not sure they want to now.

One of my acquaintances lost his job sometime back.  I spoke to him a couple of times . He initially did some calculations and said his networth was 6mn $ ( he was us based)... so he did not have any urgency to find a new role. He was financially  free  However a month down the line he was trying his hand at multiple interviews and pushing to find a job. He was 43 yrs old!

Another acquaintance who is 49 yrs has all but finished his children's education etc and is financially free. While he keeps saying that he doesnt need to work, one doesnt see him slacking off.

Even when a person is financially free one must understand that there is another component that helps decide what the person does with his or her time. In India one always has the push to be utilizing their time vs staying at home and relaxing. That could happen in the western countries but most likely not in the asian cultures.

So... in the end.. financial freedom is about being free from financial worries and not really about deciding to stop working and taking a VRS.

Learning from others.. thats simplefinancialsense

Nps is 2lakh crore + and growing

The government push to drive utilization of NPS seems to be yielding significant results ( I know because they also come to my organization and did a full push to convert people to join..  and I did).

As per some figures I read, the amount has almost doubled and number of subscribers has gone up by 70% +.

Now there are some significant benefits of NPS.. the biggest being the fact that one can invest in equity vs only the debt that epfo does ( or the max of 15%). This ensures a better return for the employee as well as lower subsidy for the government .

Second big thing for the employee is that they can get full tax benefit of upto 10% of their basic over and above the 2lakh of 80cc benefit.. This is big. ( 1.5lakh plus to 50k nps benefit)

Of course there are some things which are different from the epfo like the EET regime of NPS and the requirement of the pension annuity with limited choices ( though the govt has brought in all the big names) .

One should opt for the NPS to save tax and get an equity exposure for their retirement planning .

It's simplefinancialsense!

50k per month is 8cr required!

Retirement planning is changing in India. Significantly and surely.

In the earlier generation where most of our parents were in government service, retirement planning was covered by pension provided by the government.. and it was very very sufficient.

The other main factor is the fact that our social structure is changing .. the entire fabric of family system. No longer can parents depend on children to support them during their retirement years.. one can think about it is as being lucky if your son and daughter even send you some money or not ask you for more!

In today's world with the significantly smaller part of the workforce in private service and with no pension cover , and the era of nuclear families and lower support system for old age parent retirement planning needs to be done and should be the primary focus of the generation even before children's education and marriage.

I know it sounds difficult and against our value systems to focus on our needs , but unless you are willing to live hand to mouth in your golden years one must take this seriously.

Here are some calculations which blow our minds. ( money money money special on retirement this week.. a must see for all ).

If one has a monthly spending today at 50k per month at the age of 30 yrs , the capital that one needs to accumulate by the age of 60 to live a comfortable life upto 80 yrs ( not even 90!) Is 7.7 cr!!! This only assumes an infaltion of  7%.

Now the interesting part if below which people need to understand asap... the amount per month required in different type of asset classes

Amount per month    type of asset    returns
15k                               equity                14%
52k                               epf                      8%
77k                               insurance           6%

Imagine the difference in the required amounts .  If one does not invest in the right asset..the impact on savings required per month shoots up exponentially .

So.. plan today for retirement.. no one else will do it for you.
invest in the right asset class..  don't be too conservative.. what your parents did no longer holds good .

Two critical decisions.. critical for you.. make them.. it's simplefinancialsense!

Looking forward for comments

The four percent rule.. for retirees

As I am in my last few decades of retirement, I have started trying to read up on what retirement means especially from a financial planning perspective.

When I look at my financials I am very far away from being able to retire early.. no way do I have sufficient money to be able to make that case. So I will need to ensure that I focus on building my career and my skills to ensure I last till the age of 60.

What though scares me is what I will do post retirement.  Though today I had a chance to read a blog where people retire from work.. early but are not in " retirement ". They use their time to do what they want, focus on building relationships or on trying to help people to build businesses.

So, I think I will not " retire", my dad is still very active and healthy but understanding financial planning for retirement is critical... and in this case I heard and read about the 4 percent rule!

The 4 percent rule basically states that you should NOT take out more than 4 percent of your capital every year.  This is to ensure your capital doesn't erode.

What this means is that you live on the interest or dividend income that you earn and not dip into the principal by more than 4 percent every year. The less you dip into in the initial years the better it is for the later part of the years.

Of course as you get into the retirement years ones income also reduces and tax liabilities come down and so do your daily expenses  ( apart from healthcare which actually goes up ).

This is an interesting way to think about the fundamental rule.. just like the rule of 72 that I have spoken about earlier.

Are there any more such rules towards retirement.. would be great to hear about them.

Let's share .. after all its simplefinancialsense

Retirement account

Yesterday, I was in a bookstore and was reading some financial book and i found a flaw in my financial planning. The book was talking about in one of its chapters to ensure that there is a separate account created for retirement planning. Even the latest edition on "Money today" was fully based on retirement planning.

I thought to myself that i had a good plan, but everything seemed to be in one bucket. The magazine asked a lot of people if they had ever dipped into their retirement savings-- THAT got me thinking. I mean how can i answer that question if i havent earmarked what is my retirement savings! Sure, i know that PF and PPF is for retirement, but that is not going to be enough, so some of my other savings are definately needed for my retirement.

So , the moral of the story is define your retirement account very very clearly. Clearly identify which investments and the money coming from those investments are towards your retirement. I plan to get this closed out over the next few weeks ( hey, it would take some time to identify these accounts and how i will manage the money!)

But here are some initial thoughts,

1. Have a separate bank account towards the retirement plans. This i guess adds to the no of savings account one should have ( read my previous post on optimize your SB accounts)

2. Move some of your investments clearly onto this account so that when you take out money from your MFs, FDs, it comes directly into your retirement account.

3. Evaluate your retirement portfolio. Decide your equity- debt ratio, which funds in equity, sectoral or diversified.

This is important, especially when you start getting older.

This will help in a long way to decide "When you WANT to retire, not When SHOULD retire" 

Happy Investing!

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