10 Basic Retirement tips – long forgotten!

You have heard them all, have you not?

Start early, save regularly, investing in fluctuating assets like equity when you are young – then shift to bonds by the time you are 55…etc.
However what use is this advice if you are 53 already? And suddenly it dawned on you that you have not done much for your retirement?

Well for starters, start!

Starting is very important – earlier the better, but better late than never.

Let us look at what can be done:

1. Stop worrying about a MAGICAL number that will allow you to retire: Indians are very good at living within their means. Unlike an American we use the public transport, we cook most of our meals, our cable tv is not as expensive –so do not be worried about how much you need.

2. Of course learn to live on less: If you do not have adequate money (as estimated by you or by some friend – NOT BY A PLANNER) start living on less, it helps. Generally finance professionals over-pitch the retirement amount required.

3. There is no INDIAN rule about how much you can withdraw from your total corpus: In the US for a very long period they have had a 4% withdrawal rule. It says over a 30 year period if you do a 50:50 debt and equity portfolio, you are in a safe harbor. However in India there has been no great research so you have only your own gut feeling to live with. Yes it looks like a 5-6% withdrawal in India should see you through – but hey we have inflation of 10%p.a.!

4. Remember simple things like PPF, dividends, long term capital gains, agricultural income are all tax-free, whereas bank interest, rent, annuities, etc. are all taxable. Makes sense to plan your income accordingly. There are some important ages for ‘taxability’ – like senior citizen limit etc. Be aware of these provisions while planning your cash withdrawal.

5. Indians never had social security, so you would not have planned for it, right? Subsidized rations, free water, cheap petrol, learn to live with all subsidies going away! Medical expenses are best avoided – choose your life style accordingly – however prepare for real big medical expenses. People who are earning will be compensated in terms of a higher salary but you will have to provide for all this from your pension.

6. No clue why but most pension calculators stop at 60! You will retire at 60 and live till say 85 yrs. So inflation up till retirement is fine, however you have to provide for inflation TILL the death of the couple that you are trying to protect with a pension. And in some cases beyond 85 years too 🙂

7. The number at which you will feel comfortable is to create various cash inflows. If you have a combination of interest, dividends and rent, you are better off. This is because rent and dividends will protect you against inflation and interest can be large enough for you to take care of your day to day needs.

8. Talk to your spouse about what you are doing, and why. Remember if you drop dead she may not know why you had 4 balanced funds, 5 MIPs, 5 funds investing in the large cap stocks, etc. etc. Tell her why you have done what you have done. If she finds you irritating – remember your portfolio may need a revamp.

9. Plan for a long life. I know a man who thought he will die at age 78 (helped by astrologers!) is a bored 87 year old….and counting. If you are 62 years old, chances are you will live another 20+ years. It requires tremendous physical, financial and psychological preparedness for this. Remember women live longer than men.

10. Have a plan B: ‘Do not buy an annuity when you retire’ is a piece of advice all planners give. Apart from the way planners are remunerated, there is another genuine reason why this advice is worth listening to. Even the best annuity in India pays only 6.7%p.a. if you try to buy an annuity whey you are about 60 years of age. However as you age, the same annuity can look very attractive. So at 70 it might be worthwhile buying an annuity…same when you are say 75. Do consult friends, strictly fee only planners (who do not do transactions at all), while arriving at a decision.

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. I know at least 50 people over 80 years of age – and the worry is many of them have no clue what to do with their time. Yes some of them have found a purpose, but they are the exception. So if you live to 114 (in one class in Mumbai, I found a guy whose great grand father had lived to 104+….:-) so get ready for a real long innings. YOU cannot lie down and say ‘I want to die’. It does not happen that way any more….

  2. An interesting point re hobbies– I will be going on a trek shortly and in last month’s hisaab I found that I’m spending as much and more on the kit, as I’m paying fees… airfare extra.

  3. Sir , one should remember a key thing “Buy annuity with return of principal” only . Else after persons’ death huge accumulated princial will go to company and not to nominee. right ?

  4. For retirement, in addition to all these financial mega planning, looks like an assured guarantee is also needed.

    Guarantee for the exact expiry date.

    For that, Buy a gun. When bored or when there is no more money, pull the trigger. No more worries.

    “Excuse me, what is the procedure to buy a gun purely for self-use?”

  5. Cash flow relative to inflation is important. So dividends and rents do play a good part.Of course, this only highlights the importance of having some equity exposure, even for a retired person , especially after retirement, as the investment horizon can be 20+ years.

  6. Very disappointed to know how ignobly you are treating sensitive issue like retirement. Last monday i was at economic times summit at mumbai where pension and retirement benfits meet was organised.pertners include govt. Sponsored NPS fund managers of lic hdfc kotak & pfrda chairman hemant contractor was main speaker along with with EPFO chairman .Nearly 400 distinguished personalities shared the gloomy picture of retirement and how this could snowball into social criss.Greece is perfect example where defined contribution was one of the main reasons of default.it was roughly 16 %of Greece gdp.I wish you have there so that you could also have been enlightened and would have avoided advising casually on serious subject like retirement.

  7. Oh no Rajeev you serious intellectuals should solve all of India’s retirement problems by creating awesome products like NPS. People like us are of no use. My frivolous book on retirement has sold a piffling 180,000 copies and my lectures have been attended by 10,000 people at the least. Thank you very much, of course

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>