Look at it anyway the Retirement statistics coming from the USA are surely scary. We just do not have enough statistics about India, but if one were to collect the data, it would be just as scary. I keep getting data in some ad hoc manner and I have no clue whether that is the trend or that is the outlier in the data.

I met a person who thought he was very comfortably off in his retirement. However that was his view, not mine.

He is about 59 years of age and is likely to retire in 6 months. He of course has his provident fund, gratuity to receive when he retires. His wife is 54 years old and has been a housewife. They have paid for the education and marriages of their 2 children who are well settled now. This couple has fixed deposits, and the potential provident fund ..etc. adding up to Rs. 65 lakhs. Other than this they have a house that is given on rent and is fetching them a rent of Rs. 20,000 per month.

He has no exposure to equity, no mutual funds, not even post office or LIC products. Plain and simple fixed deposits in their joint names.

He thought he was very well off because their lifestyle was simple (true), and the fact that if they did indulge themselves once in a while (like a vacation that they are planning every year) they could afford it because they were rich. I guess this rich feeling comes from the Rs. 65 lakh savings figure. His logic was right too. He needed only Rs. 10-15,000 a month from his savings – and the balance of the household expenses was anyway coming from the rent.

He said ‘my rent goes up by 10% every year’ and the house is appreciating. He was sure that the 10% hike was perennial – or would happen for at least 10 more years. At that stage he would shift to that house (it was smaller) and sell off the current house in which he was living. So at the age of say 70 he would have one house (in which he was staying) and Rs. 2.25 crore (estimated sale value of his current house). Again good logic – and he felt that at stage if he got Rs. 2.25 cr. that amount kept in a bank fixed deposit could give him enough returns to last for another 10-15 years of his life.

My view:

Congrats, yes you have enough. Surely enough if you do not do anything way out of the ordinary. What I do not like is the inflation risk (longevity risk), and the amazingly high taxation (Imagine on a FD of Rs. 65 lakhs he has an income of Rs. 6 lakhs and ends up paying tax on that whole amount). I would have surely restructured this into some balanced funds (with more than 65% in equity), debt funds and bank fixed deposits. This would have brought the current income to say Rs. 100,000 per annum from fixed deposits and Rs. 240,000 from rent. If there was a gap that would have come from a withdrawal from a Mutual fund.

He also needs an annuity – she does not know how to handle investments…so simplification is an important part of the agenda..

I would still not be comfortable with such a balance sheet at age 60. I would have liked to have one house, and a million US $…

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  1. Very good balance sheet indeed, eventhough no equity component but few things are working in his favour.

    1. Simple lifestyle
    2. Invested in property (two houses puts him in a rich category)at the right time
    3. Inflation indexed rental income
    4. All these assumes he will not require any support from chidren who any ways are well settled.

    So barring anyone one off things like a cash burning illness they are good, they can may be put money into a Debt fund to save taxes, or may be put some into Tax free bonds slated to come or as Subra suggessted balanced funds. But either way they are good to go they have doen well congrats.

    My uncle bought a hell lot of a gold but no property and no stocks and he is suffering post retirement

    My dad was a HNI but didnt diversified beyond business and one fine day his business tanked and so his fortunes

    So its good that this person has made nice investments but could do better.

  2. I am agree with Umang and his finding. But my question to Subra that will it be OK to invest @ age of 60 in equity ? if Yes how to convince these couple as they never exposed to equity in their lifetime ?

  3. lakshminarasimman

    sir you are contradicting your own previous post.

    you are becoming like america telling everyone what is the correct way

    this is what they are comfortable with . there is nothing wrong.

    they are ok.

    and the reality of money is even if you have million dollars it will never be enough.

  4. Hi Subra,

    I think he is well off, If i consider a case in point,One person i know when he retired from 10 lks as corpous,His children are well settled,
    He lives with one son, has indexed pension, and in past 10 years he has not
    faced any difficulty in financial terms.
    He had heart operation covered by his children company policy
    married off his children after retirement

    Nothing bad, I think where he was right is putting good principles into children and children taking care of his parents.

    That is one thing which we should try to tell our childeren rather than worry about all this

    Love yuor children more than youe money (Dont go for education loan etc when you can afford)
    children will love you back more than their money.

    PS: He has a backup plan as well, If children wont look after him he has indexed pension, loving brothers, and three houses in small village where he can live royally with pension.

  5. Good Case Study and great comments..
    The couple is definitely in comfortable retirement scenario, now they just need to take care of their health and the properties.

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