When you are accumulating for Retirement, you see where you are at the end of each year. If you think you are short, you invest more hoping that you will reach the magic figure soon! However if you are retired what do you do?
How do you do your assessment? Well there are some simple things which people use – let us see what they do.
If you have retired at 58 (assuming your earnings are now zero) and you live till the age of 90 – it means you will live for about 32 years in zero EARNED income and ONLY expenses kind of a scenario.
1. Most advisers /planners will tell you not to worry if you are living off your income and not touching your capital:
I do not like this method because in the 32 years inflation is likely to take a big toll of your income in the later years and that will hurt you bad.
2. If the value of your portfolio is greater at the end of the year than at the beginning of the year you are better off?
Well this is a nice test at the initial stage but at later stages when the expenses increase, your portfolio appreciation may not be ENOUGH to offset inflation AND keep the corpus intact in real terms.
3. Projected returns
Projecting returns of expenses and income is fine but what do you do when suddenly you find that the depreciation in your portfolio is very deep – and you have no time to react. Or that you have lost all risk appetite?
Well, here is what I have done for a recent retiree – only thing is his earned income is not going down – which means he will NOT PANIC EVEN if something goes wrong in his portfolio 🙂
Let us call him X. He has a portfolio of Rs. 5 crores apart from a nice well furnished house in Mumbai and an ancestral house in Baroda. He plans to go and stay in Baroda once he is about 70 years of age. His elder brother and an unmarried sister are already there and Mr.X feels he is too young to go there. His Mumbai house is currently worth about Rs. 3 crores – and he hopes that it will fetch him at least Rs. 5 crores after 10 years when he plans to migrate.
His 5 crores is divided into – 1.8 crore in equity, Rs. 1.2 crore in debt instruments like ppf, bank fd, liquid funds, etc. (he is not yet entitled for senior citizen accounts), 1.8 crore in a property which pays him about Rs. 4 lakhs annual rent (this is his wife’s inherited property) and about 20 lakhs in miscellaneous assets including cash, bank, gold,…etc.
What will we do? ha that is another post, right?
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