I found a 78 year old man with a very strong balance sheet, but poor P&L account!
What does it mean?
Well he had a lot of assets – a nice big house which he was not using much, equities, bonds, and of course cash.
Life long if you (and me) are brought up saying ‘You will live within your means’ – we tend to interpret it as ‘though shall NEVER dip into your capital.
A fantastic thought process for sure, AND RIGHT TOO.
However when you are 78 years of age, YOU NEED TO BREAK THAT LAW….
Let us assume he has Rs. 30 lakhs in equities, Rs. 50 lakhs in bonds, post office, bank fd, etc. He also has a house which is worth Rs. 2 + crore. Son settled in US no chance of coming to India, doing well does not need this money.
This man has annual expenses of about Rs. 4 lakhs – which is ‘tight’ from his interest and dividend incomes!
He does not like the idea of selling some of his equities and converting it to bonds or bond fund – because he is emotionally ‘attached’ to those shares. So what can he do? live more frugally! He will be in a hurry to switch off the lights, will keep nagging his wife for switching on the fan in one room and going to get something, not go for a medical check up (oops can u beat that?), …
I suggested shifting about Rs. 25 lakhs to a variety of debt funds. This 25 to come from selling some equities, liquidating some FDs. He asked me ‘how much will be the dividend’ I said ‘not dividends would suggest a swp on a monthly basis.
He said ‘OMG it will come out of capital.
I said hardly. Given the current interest rates, if you do withdraw 1% pm it will take 30 years for the corpus to get over…..
I shudder to think what would have happened if I had suggested a Reverse Mortgage….
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