An ideal retirement is in accomplishment of life goals & fulfilment of all the dreams that one had held on to, till this moment of transition. The golden age should not see any remnant of regret from losing out on active value creation, status or earned income. It ought to be fuelled by passion, creativity & everything that gives a sense of purpose.
Vision of Retired Life
One can, either go through life oblivious of what truly drives your happiness or have a vision of kind of life that is truly worth living. Indecision lets circumstances decide for you but dreams & goals guide you to the path of your own choosing. So, setting goals for retirement is an absolutely essential first step towards retirement.
Dreaming up vision of a perfect retirement, translating into a satisfied life, may feel as daunting as the times when choices of career & marriage had to be made. Give a thought to all the passions, experiences, learnings & activities that had to be deferred, so that your working life could prosper. Whatever one’s plan for perfect future be, it has to be in consonance with life partner, because it is better to be on same page before any financial or emotional commitment takes place. It is important to realize that retirement cannot just be a winding down phase.
A vision for a special retired life not only motivates you for limitless possibilities ahead, it also sets out markers for ‘when to retire’ & ‘cost of retirement’. Serious financial planning can begin only when the contours of desirable retirement are in place.
Where to retire
Localizing the post-retirement life is a sub-part of vision for retired life but could also be linked up with finances of retirement. This decision impacts the cost of retirement or could be impacted by the limitations of resources available to fund the retirement. Vision for certain environment, infrastructure or status could drive the choice, say for example a beach house, glamorous part of city, access to health facilities, employment or social life etc. The choice, though has to either meet the affordability criteria or drive the affordability agenda. One could choose to move to a lower cost area if it helps ease up pressure on finances or make certain experiences possible.
Date for transition to retirement (or a partial one) may have been decided very much the moment one joined the employment (government job) or it could be of one’s own choosing (private sector or own business). This date provides some exactitude to the retirement plan by defining the period left for earned income, its’ downstream effect on savings, investment & retirement corpus as well as the post-retirement period that can be financed with less or no earned income. One may have to postpone retirement, if it is felt that finances fall short of demands of retirement.
Retirement Corpus – Affordability Scenario
Subject to the vision of retirement & time left to retire, the preparation now is at the affordability doorstep. This puzzle of ‘fulfilling & financially secure retirement’ is a complex one, given that an uncertainly long future is being forecasted, based on unknowable assumptions. As consequences of a miscalculation can be quite serious, both optimistic & pessimistic scenarios should be developed, which then can be improved upon as more & more data becomes available.
Projections of an affordable retirement are based on
- budgeted expenses of the retired life,
- accumulated pension funds,
- returns on investments &
- rate of withdrawals from corpus.
Health Care is the trickiest area of planning because proper insurance eats up a chunk of income but no insurance can create risk for expensive treatment. Future health & associated health care costs (including old age care) are a big unknown. It is better to err on the side of caution as much as finances allow.
The gap between the accumulated corpus & demands of the desired vision, can be bridged by increasing income during retirement &/or reducing budgeted expenses. Income could be bumped up by delayed or partial retirement, disposing of unused valuables & reverse mortgage of house property. Depending on the gap still to be covered, the vision for retirement either be reworked from scratch to realistic levels or be scaled back. ‘Rule of 300’ says that each monthly expense needs assets 300 times its size, to support it. So, a reduction of post-retirement monthly expense by Rs. 1000/- should reduce retirement corpus needs by Rs. 3 lakh. Expenses or luxuries that do not contribute to core, desired life experiences, must be the first ones to be put on chopping block.
A life of freedom, fulfilment & financial security is incomplete without attending to all that is integral to business of living & dying. Legacy should be protected by estate planning which includes will, nominations & power of attorney. A master file should be maintained with all necessary documents, properly organized & listed, so that heirs do not have to do your work, the hard way –
- Financial accounts with account numbers, contact information, addresses, nominations & latest statement of annuities, life insurance, investments, loans, etc.
- Wills, Powers of Attorney & other Estate Planning documents
- Identity documents, Marriage certificate etc.
- Property deeds
- List of valuables & safe deposit box key with listing of what’s inside the box
With the above groundwork done, you are now set for the mathematics of retirement planning.