In Gurgaon, Vijay Beri starts his day by cycling 7 km. He follows this with either yoga, a game of golf or a swim. This is the kind of exercise most doctors recommend to their 30-something patients. For 67-year-old Beri, it’s just the beginning of an activity-packed day. Meanwhile, in Ahmedabad, S. Bhaskaran, 66, gets ready to teach mathematics to IIT aspirants. “All my working years went into providing for my family. Now I want to do what I enjoy the most—teaching youngsters,” he says.
Beri and Bhaskaran are part of the new breed of retirees who believe in enjoying every minute of their sunset years. They don’t fit into the generally accepted mould of retired senior citizens—frail, bored and withdrawn. “My wife and I watch cricket, devote our time to social causes, and generally keep ourselves engaged in activities that we like,” says 64-year-old Delhi-based Shubh Sharda.
The Right Strategy |
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| Here’s how you can make the most of your retirement nest egg |
| Asset-rich, cash-poor You accumulated assets during your career, only to find you need liquidity to support postretirement living. You have a large house, cars and white goods, but cannot raise cash for a trip abroad. 1. Says Vishal Gupta, director, marketing, Aviva India: “Being asset-rich in itself is not a bad idea, as long as the asset generates income, such as rent.” 2. A second home, land, fixed deposit or good stocks can be sold and the money invested in an annuity that provides monthly liquidity. |
| Debt-rich, equity-poor People forget about provident funds—EPF or PPF—and continue to hold guaranteedreturn fixed deposits. Their portfolios lack the spikes of equity investment. 1. Brijesh Dalmia, financial planner and founder, Mandar Finance says, “With a longer lifespan, it is better to have some investment in mutual funds and stocks to let the corpus grow.” 2. “In the first half of retirement, based on a person’s risk profile, at least 25% must be in equity,” says Gaurav Mashruwala, CFP. |
| Living off the capital By the time most people retire, they assume that they can live off their invested capital, and very often run through it during their lifetime. 1. Live off the interest to have a steady monthly income. Once expenses are met, dig into the capital for indulgences. 2. For regular monthly inflows, consider annuities, which are periodic payments from life insurance policies. Or look at rental income. |
| Estate planning is not retirement planning People forget to save enough for themselves to leave behind assets for dependants. 1. Says B. Srinivasan, financial planner and co-founder, Shree Sidvin: “Estate planning is important only if you wish to leave something for your dependants.” Remember that you have a right to a comfortable life. |
Yes, they indulge in some of the traditional pastimes associated with retired people—walking the dogs, tending to the garden and pottering around the house. But as Kolkatabased financial planner Brijesh Dalmia says, “Retirees now want to travel, entertain and even take up crazy hobbies.” What it also means is that they are financially comfortable and are able to splurge on these. Many of the retirees we spoke to have worked out good plans that are paying them well and some have not retired actively, just cut their need to earn for a living.
All this has made experts view the payout phase of retirement in a different light. Says Mumbai-based planner Gaurav Mashruwala: “I now look at retirement as a two-part journey—the 60-72-year age bracket, which is the risk-bearing stage, and the 72-85-year phase, when you cut back on risk.” This is because a large percentage of retirees continues to be invested in equities and growth instruments well into their retirement. A lot of this is because of changes in attitudes. However, the foundation remains the solid financial security that many of these people have achieved in their working years. Armed with this confidence, they take easily to dabbling in the stock markets and equity-rich investments. “I am fine with retirees investing in stocks and related instruments as long as they can stomach the risk associated with it,” says Dalmia.
Compare this with the established school of thought that advises one to shift to debt products as one approaches retirement. Of course, capital preservation continues to be the main aim of the new retiree, but he is also looking at income growth. In many cases, he is happy to take some risk if it results in growth. This does not mean that all retirees are in a happy financial situation. Many of them are assetrich, but cannot afford the occasional luxury, many have too much debt and cannot deal with inflation (see The Right Strategy).
Unlike the retirement planning phase (accumulation), where there is plenty to choose from, the payout phase currently does not have much to offer, apart from annuities. “There are ways to use existing instruments to serve as income-generators in retirement. There is a lot that one can expect in the coming years,” says Rajesh Relan, managing director, MetLife India Insurance. There are capital-guaranteed and indexed annuities that are yet to come to the market, but will be available with time. For now, smart planning will let you make the most of the limited options available. We have split the payout phase into three periods. See how you could plan your retirement around these.
Phase 1: Early retirement years
“If all is planned well, by now one would have a home, a car and be clear of all debts,” says Mashruwala. This is perhaps the most difficult stage of retirement as you deal with the maximum change. “I realised that though some expenses had gone down, certain others had risen,” says Anand Mohite, a retired Western Railways engineer based in Pune. “I was mak- ing more trips to be with my children in Bengaluru and Orissa, which was eating into my savings,” he says.
Independent Future |
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| The number of dependants per 100 persons of working age will decline drastically in the future. To fall in this league, you must start planning now. |
| 2000-10: 59.5 |
| 2010-20: 52.5 |
| 2020-30: 49.5 |
| 2030-40: 47.5 |
| Figures are the number of dependants per 100 persons of working age. Source: UN Population Division |
It’s critical to check expenses at this stage as the temptation to spend is high when retirement benefits flow in along with loads of free time. Use this time to start a retirement budget. It’s a bit like starting financial planning from scratch— you’ll need to segregate savings into growth and regular income generation. “About 20% of retirement savings should take care of the regular expenses that one will incur through annuities and pension plans,” says Srinivasan.
As for the rest, he suggests a second tier of funds: “Keep another 20-25% in MIPs and liquid funds to take care of the unforeseen,” he says. The remaining should be invested in growth schemes of mutual funds to work towards wealth creation.
For those who are not so lucky as to have their retirement plans in place, the most difficult shift is to cut expenses and begin a lifestyle that they are not used to. “I thought I had planned well, but a medical complication forced me to dip into my Provident Fund savings just before I was going to retire,” says Nagpur-based 62-year-old former banker, Sridhar Gadgil. Gadgil developed a problem in his eyes, which affected his vision and also the ability to extend his career. He had to sell his house and move into a smaller flat, a cut in the lifestyle that he was used to. Ideally, retired people should retain assets that are essential and ones they can maintain. Asset insurance in this phase is a must.
For Bhaskaran, coaching kids not only fulfils his dream, but also increases his earnings and lets his retirement corpus grow without dipping into it. “I have not touched my planned retirement corpus yet, largely because of my second career, which pays enough to manage my regular expenses,” he says. With interest rate fluctuations a given, it’s increasingly difficult for the newly retired to live off the interest without dipping into the capital. “This is why the retired people need growth strategies,” says Srinivasan. For the risk-averse, debt-friendly fixedincome retirees, the interest accumulation with the principal no longer balances the inflation rate
Phase 2: The middle years
Once you turn 65, you are officially a senior citizen, at least for the tax authorities. Planners suggest that you work out your retirement plan to make the most of the tax benefits at a stage when you need to balance growth and security. “In my years as an employee with Air India, there was no pension. However, my stints abroad and the fear of managing my finances on my own in later years made me come up with my own plan,” says Beri.
What he did was invest in real estate, which has created a steady cash flow. He has rented one flat and resides in another. Beri is lucky that he joined a pension plan in Canada and The Netherlands, where he had worked. These plans pay him in foreign exchange, which works in his favour, especially when the rupee falls against the dollar or the Euro.
This is also the time when you are unlikely to have financial dependants, except your spouse. “Both my children are well-settled and only my wife is dependent on me, but as we had planned jointly for our retirement, there is not much to worry about,” says Sharda. Some of his retirement benefits are locked into annuities, which take care of the regular cash flows, while the rest, invested in growth instruments like mutual funds, continue to grow.
For Delhi-based Mohinder Kaur and Didar Singh, both in their 60s, staying away from their children, who are settled abroad and maintaining a big house added to their expenses. “We had not planned for such a situation,” they say. However, a proposal by the Delhi government to allow a part of the house to be turned into bed-andbreakfast units was a welcome move. “We were delighted and spent Rs 1 lakh on the existing structure to make it suitable for guests,” they say. Today, by letting out rooms, not only do they earn enough to manage and maintain their house better, it also allows them to earn more, which augments their savings.
This is also the phase when one should start liquidating some investments to generate cash flows. “What is the use of not spending enough on oneself?” asks Mashruwala. Most often, retirees keep saving for their dependants, when they could be living in better quality and comfort.
Phase 3: Golden phase
This is what we all want retired life to be—no family demands, enough money to indulge the grandchildren and plenty to do. Financially, this is when you can bring down your equity exposure unless you still like taking risks. However, do not invest beyond 15% of the portfolio in monthly income plans of equity funds. Liquidate other assets into income-generating instruments.
Largely, you should be receiving money from annuities, income and dividends from investment in this phase. The danger in this phase is that you could end up spending all the capital, leaving nothing to live on. “I moved into a retirement home as soon as my health started to take a toll on me, and security at home started to bother me,” says 75-yearold Chennai-based Ramanathan Iyer. Iyer’s children are settled abroad, he is unable to adjust to the lifestyle in the West and does not want to live there. “I was determined to age with grace and live on my terms. The idea behind this resort is that older citizens can live in peace and comfort,” he says.
He is not alone. There are many like him who are taking to living in retirement communes and enjoy their golden years. It’s not that these senior citizens have been driven out of oppressive homes or treated badly by offsprings and relatives. More and more, the elderly are discovering that they need a place that will give them security and camaraderie without sacrificing personal space. “It’s getting increasingly dangerous for seniors to live alone,” says Srinivasan. While most elders own a house, in the absence of an active reverse mortgage product, the house is illiquid and can be difficult and expensive to maintain.
Unfortunately, most people neglect their regular budgets in this phase. For instance, regular household expenses are accounted for, but many start to travel abroad to meet their children. This is not factored in, so they dip into their reserves.
Increased life expectancy and better healthcare systems mean your retired life can stretch 25-30 years. It’s turning into just another stage of life with its own set of challenges and opportunities. As one is free to choose what one wants to do rather than what one has to do, taking up a hobby will ease life in retirement.
“With so much to do, where is the time to get depressed or think of how to spend time?” says Beri. His wife plays the piano as he enjoys the music with his afternoon tea. A retired couple, who is not suffering retirement, but thanks to a good plan, is enjoying it to the fullest.
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CASE STUDIES
Vijay Beri, 67
Retirement corpus: For life
His retirement plan: Mutual funds, real estate and pension to maintain his pre-retirement lifestyle without any worries.
Why should I compromise at this stage in life when my responsibilities are over? There is so much to do. Where’s the time to get bored?
Shubh Sharda, 64
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Retirement corpus: For life
His retirement plan: Annuities to provide regular cash flows as well as growth instruments, including mutual funds.
Only my wife is financially dependent on me, but we planned jointly for retirement so I see no reason to worry.
