The author started planning in her 20s in a small way, but with a wide portfolio. This included products like savings, funds, a pension plan and real estate, all of which have grown over the years. “I want to keep writing till the end and hope my investments cover me well. But there’s no guarantee.” |
On retiring, the fashion designer wants to travel the world. He’s banking on his business, and luck. “I have never had a financial plan and never will.” |
This is why he has never done any planning by way of insurance policies, pension plans or mutual funds. But he is confident that his paintings will ensure his livelihood. What many like Dhar fail to consider is that while singledom spells freedom and flexibility, there is no safety net. Says Anurag Mehrotra, head, wealth management, Edelweiss Securities: “A single person has to draw up a retirement plan more carefully than a married one because he cannot count on another salary or a care-giver.” There isn’t even a social security system to bail him out if things go wrong. With life expectancy going up, the threat of outliving one’s retirement corpus is becoming increasingly real.
Among the few singles who are taking retirement planning seriously is 39-year-old Sunny Singh. The author of Single in the City says: “Singles should not only plan financially, but also practically—where they will live, what sort of support system they will have, the emotional back-up and emergency measures.” Although she hopes to keep writing, and therefore earning, till the day she dies, Singh has taken steps to safeguard her future. “I have a fairly wide portfolio: savings, funds, a pension plan and real estate. These began in very small ways when I was in my 20s and have grown over the years,” she says.
Regardless of age, sex and circumstances, the rules of the game remain the same for retirement planning. As Naresh Pachisia, managing director, SKP Securities, says: “When you stop working for money, your money should start working for you.” However, unlike couples, a single person only needs to focus on individual needs. So his thinking should differ only in terms of the financial products to fit in with his goals, not the basic road map. For instance, both couples and singles ought to follow Singh’s example and start building a retirement corpus early in life to benefit from the twin powers of time and compounding. But while a life insurance policy won’t help a single person, it’s mandatory for those with financial dependants.
Health insurance, however, is more crucial for singles. This segment needs adequate cover not only for illnesses but also long-term care, should one require assistance with normal activities in later years. So the biggest proportion of the corpus should be built keeping these expenses in mind. The other major factor to consider is cost of living. The lifestyle you want after retirement, whether it includes golf or travelling, will determine this cost. Says Mehrotra: “One way to work out your cost of living is to base your annual retirement income needs on 70% of your current income.”
DEPENDANTS AFFECT THE CORPUS If you are single when you retire, the size of the corpus will depend on whether or not you have dependants. Consider 45-year-old twins, Sita and Geeta, who have a monthly income of Rs 60,000 each. While Sita is a widow with two children, Geeta is a zero-liability person. Here is how their finances will play out when they retire at 60: | ||
| GEETA | SITA | |
| Investible surplus | Rs 32,000 | Rs 25,000 |
| Financial goals | House: Rs 10,000 Bigger car: Rs 12,000 Retirement: Rs 10,000 | House: Rs 12,000 Kids’ education: Rs 8,000 Retirement: Rs 5,000 |
| Retirement corpus | At 60, Geeta can have a retirement corpus of Rs 56,30,434 if she invests her Rs 10,000 in equities and debt in a 70:30 ratio | At 60, Sita can have a retirement corpus of Rs 24,63,673 if she invests Rs 2,500 in equities, the rest in debt instruments |
| Risks & Returns | As a single person, Geeta can take more risk | Sita can never take the high-risk route |
| Higher risk = higher returns | The only way to increase her corpus is by cutting down on expenses | |
| As her retirement corpus has to cover her alone, she has the freedom to retire early | In 15-20 years, her older child would have started earning, which would give her a safety net | |
Those who are self-employed or have careers with no shelf-life hope to earn till the end. With no plans to retire, they see no need for planning. They also indulge in activities that others plan to do after hanging up their boots, so they don’t need to calculate the cost of living. But experts say this is a mistake because one cannot foresee the future. What if one is disabled and can no longer work? Also, singles, like many people, find the transition from a hectic career to no work difficult.
One way to avoid this is to mark out a decent amount of the corpus for a second career, be it a new business or a hobby. Sudheer M. has planned for this eventuality earlier than most people. Till recently, he was working in the US, but after his mother’s death, the 28-year-old returned to India to become a consultant and an angel investor, and plans to launch a Web start-up. “I was busy living from month to month, often with zero bank balance. My mother’s demise was my wake-up call, because I no longer have a safety net,” says Sudheer, who has now drawn up a plan to secure his future.
The only thing this plan lacks is a house. Like Sudheer, most singles tend to think that rented property is more convenient in the absence of any beneficiaries, but experts recommend otherwise. Owning a house is cheaper, as it eliminates the risk of increasing rent and maintenance costs. Plus, it is a handy asset that can be disposed of if you run out of savings. Reena Kalita learnt this the hard way. Like most Indians, she and her husband considered their son their pension plan. So, in 2005, they sold off their Guwahati flat and wiped out their life’s savings to finance his foreign MBA degree. Cut to 2008.
Kalita is a homeless widow, estranged from her son and living with relatives. “I could have sold the flat to buy a smaller place in the city and started afresh by taking tuitions,” laments the 56-year-old.
That’s the trouble with focusing on today. Tomorrow always arrives, often faster than expected and with unwanted twists.
| Myth: As I have no dependants, my pension will be enough to ensure a comfortable retired life. Fact: With the defined benefit era long over, you are unlikely to manage with just your pension. The maximum pension amount that one is entitled to from the Employees Pension Scheme is less than Rs 3,300 a month. | |
The singles’ guide to a retirement plan Your investment plan and financial instruments will differ depending on your age; you can afford to take more risk if you start at 30 than at 50. | |
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| Ideal asset allocation: Equity and equity-related: 50% Alternative investments: 30%; Debt and debt-related: 20% | Ideal asset allocation: Equity and equity-related: 30% Alternative investments: 20% Debt and debt-related: 50% |
| The portfolio should be reviewed and dynamically adjusted every 18 months or so. | The portfolio should be reviewed and rebalanced every 6-9 months to check economyor market-related impact. |
| Consider products with longer lock-in periods, as they give huge capital gains and act as forced savings. Diversification could be done across global equities and global commodity stocks through mutual funds. | Avoid products with longer lock-in periods due to the increased and sudden need for capital at this age. Create annuities for the future. |
| Ideal products: Shares, as well as mid-cap, thematic, large-cap, real estate, art and value funds. In the medium term, due to the prevailing uncertainties, investing in gold could be useful. | Ideal products: Liquid and liquid-plus funds. Also consider fixed maturity plans, monthly income plans, structured products, large-cap funds and gold. |
