While you retire it’s not necessarily mean that you retire from your life. It doesn’t mean you don’t need regular income. The old saying is true that, “Retirement is quite different from two-week vacation.” If you’re a pre-retiree, you may be too busy focusing on your current circumstances like income, expenses and so called dissimilar important family commitments and responsibilities. Do you feel that during retirement you may not require enormous income because in India, senior citizens can avail many benefits like income tax, travel discounts (air, rail bus etc), medical expenses, pension and higher interest rate, etc.? So, you anticipate that you’re safe and Retirement Plan has no role? Have you ever quantified the amount of benefits that are available with you after retirement? Can you guess how much income is required? You need to quantify the gap between available resources and your income necessity. All are very uncommon and unique. You have to understand the gap between available benefits and your needs. Your assumptions may not work in practice due to changing scenarios. Changes can be mental state, physical condition or both, age, income, expenses, family and macro economic factors etc. Do you periodically review your changing needs? Changing needs may be in terms of money, your likes and dislikes. You need peace of mind to evaluate your needs and your changes. Take some time to explore you with realities. If you fail to do so, you may be welcoming scrapes in your life. You may ask someone who has just retired about how they had planned. If they have failed to do proper Retirement Plan, then definitely they’ll share how large is the uncertainties in front of them, the fear of unknown determinants like health, money, isolation and other personal determinants.
Believe it or not, retirement struggles are frustration, anxiety, fear of uncertainties of income and worries of isolation. Above divulged struggles are true and universally accepted if you want to live by chance.
“Happiness cannot be pursued, it must ensue. One must have a reason to be happy.” – Viktor Frankl
After retirement you can start your new life
You’ll not be abandoned if you have right Retirement Plan in place well in advance. You may neglect Retirement Plan as it may be a distance goal. But, the second dependency, i.e. retirement period may last longer (15-30 years or even more). It’s obvious that you will not like to compromise your lifestyle during retirement. But for quality life you need both money and peace. After retirement you may be reluctant to confine yourself within family as you have fulfilled all family commitments, responsibilities and unfinished works. You’ll be too tired to carry on homogeneous life.Certainly you want to keep your head up. You may be obsessed to live worry free life and would like to enjoy peace of mind. For all this, you should have monetary provision as and when required. You must start building your retirement corpus to avoid unnecessary pressure during the end of working life including emergency fund and insurance. Insurance coverage may vary from individual to individual. Your anticipation is easier said than done unless you have solid Retirement Plan.
“When a man retires, his wife gets twice the husband but only half the income.” – Chi Chi Rodriguez
Response of your spouse
Your spouse may have different expectations. I recommend you to share each other’s expectations/feelings and at least reach to an understanding. Family peace is essential. For family peace, you need to have proper communication, go hand in hand with mutual respect, work together, understand finance and you need lot of patience. It’s ideal for both husband and wife together to consult with Financial Planner. With other discussions, you have to seek appropriate decisions for your lifestyle, your goals, your risk tolerance and peace.
While you are working, you have predictable income. It’s quite natural for a retiree to have the fear of losing money due to bad investment decisions. You may be a victim due to sales peaches and influences of salespersons, bank relationship managers and agents. Think for long term and act wisely.
Firstly, having peace of mind means you’re happy. Happiness comes from your inner mind. Happiness comes when you can successfully cater to your needs without stress. Listen to your inner self than the outer world while you think about Retirement Plan. I mean to say that it is wise not to follow others. When you do what others are doing instead of understanding your own real concerns, either you end up being at a mess or you can’t take any independent decisions. The consequences are financial catastrophes.
For permanent solution, you may share your qualitative & quantitative inputs with your Financial Planner. Your Financial Planner will suggest you to go for Retirement Plan, Scenario Plan or both. Secondly, the outer world is very confusing. What we say is all about wants, not about our needs. If you’re too much focused on materialistic world, your inner mind will be disturbed. You’ll be running to satisfy expectations of others and your own. This will lead you to a path where you’ll not find peace. It may give you temporary relief, but not permanent solution.
Retirement Plan is an integral part of Detailed Financial Plan for every individual. You have to consider the following core areas
- Continuation of same standard of living even after retirement, i.e. income tax and inflation adjusted regular income;
- Adequate emergency funds to meet unforeseen events like accident, disability, critical illness may be even chronic etc.;
- Provision of anticipated costs such as residential accommodation, helping children financially in case they need;
- Adequate health insurance with critical illness coverage, fire & burglary home insurance and liability insurance etc.;
- Managing investment portfolios where you can offset both income tax & inflation;
- Income Tax Planning;
- Estate Planning;
- Scenario Planning (in case of requirement) etc.
The above issues are the major factors and you may need guidance/advice on other areas also which are unique or subjective.
If you’re salaried, you may not have defined benefit pension plans anymore. Instead you have contributory pension plan. Do you know what exactly your employment benefits are? But if you’re a professional or business man, your Financial Planner will work with you according to your needs. You have to assess your available resources and your needs. The risk of dying early during retirement is not a big risk. Bigger risk is to live long after retirement.
Your all assumptions should be conservative. By assumptions, I mean the following:
- rate of return on investment,
- post retirement income,
- life expectancy, retirement age,
- family expectations, own expectations,
- ancestral property,
- retirement corpus etc.
Suppose, you assume that you will retire at the age of 60 and your life expectancy is 75 years. What if due to health issues, you prepone your retirement by 55 and survive up to 80-85 years? Then there is high chance to outlive your retirement corpus.
What is Retirement Plan?
“Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money.” – Jonathan Clements
Retirement Plan is the plan you must prepare to get regular income even after your retirement. You must consider your qualitative longings like lifestyle, holidays, charitable works or starting of new business etc.
1. For efficacious Retirement Plan, the Financial Planner would discuss the following factors that would decide the scope of Retirement Plan
- Employer provided Retirement Plans (husband and wife both);
- Risk profile (husband and wife separately);
- Social Security Benefits if any (husband and wife both);
- Insurance coverage & analysis (husband and wife separately);
- Existing Investments mapping with retirement (husband and wife both);
- Health issues (husband and wife separately);
- Current age (husband and wife separately);
- Expected longevity (husband and wife separately);
- Risk profile (husband and wife separately);
- Budget (husband and wife both);
- Current income & expenses ( cash flow) (husband and wife both);
- Income Tax Issues (husband and wife separately);
- Rate of return;
- Family structure & commitments (husband & wife both);
- Change in lifestyle;
- Legacy planning;
- Net Worth;
- Pre-closure of loan options (husband and wife separately) &
- Your aspirations/hobbies (husband and wife separately) etc.
2. Scenario Plan
The process of scenario plan usually depends on the situation where a retiree may go through a transition phase. This usually begins with a long discussion and phase wise process. How a retiree or a pre-retiree experiences about the big shift from normal life to retirement life with too many uncertainties depend on the personal and financial situation and arrives at new and normal peaceful retired life.
You need both technical and personal approach. In technical approach, a Financial Planner applies mathematical calculations and considers income tax, rate of return, inflation to quantify the numbers. Simultaneously, for qualitative approach he considers client’s feelings, emotions like fear, confidence, greed, expectations etc.
You are wondering how? The Financial Planner will plan for you and he’ll make certain strategies for you with periodical reviews with corrective steps. During your earning span, you can channelize the fund to secure your retirement and simultaneously, you can meet your current family expenses. If you have retired and even you have pension income, you need Retirement Plan. You choose to live by choice & not by chance and that too you look for peace of mind. You’re free to choose your own values, objectives, purpose and destiny.
Why do you need Retirement Plan?
Life has its cycles which resemble business cycle. It moves as a curve and it’s not straight. The curve depends on the situation like health, age, wealth, consumption, income, expenses and unforeseen contingencies. As you don’t have social security as such Retirement Plan covers all those aspects. Plan means a diagram or step wise process with time and resources to achieve particular goal/goals.
What you think or believe may not be correct as all are assumptions. You have to understand the realities before you take steps. You may think you can reduce your expenses, you can maintain or get regular flow of desired income but in reality it may not work. Further, you may think that you can financially support others, your health will remain same, your children will support you mentally and financially or both, you have adequate fund to cater to your retirement needs, you will receive inheritance, you will be working till 65 etc. All are assumptions it may happen or mayn’t happen. Assumptions are hypothesis. Incorrect Retirement Plan assumptions are painful because by the time a retiree or a pre-retiree realizes their fallacious assumption/s hardly they can take corrective steps due to limited means and time.
Have you ever thought about your quality of life that you want? How do you want to live the rest of your life? These are all about your health, peace, leisure, wealth and other factors. Involve your spouse. If you really want to give it a real shape, share your inputs with your Financial Planner.
No Financial Plan is permanent as your needs or situations are ever-changing. You need to review it periodically and implement new strategies with corrective actions (if needed) to reach your goal/goals. Funding post-retirement expenses is going to be one of the biggest challenges now a day due to health, longevity and family structure, that is why you need sound Retirement Plan. The main concerns are if you outlive your money or deterioration of your physical or mental health. Better to forget old thoughts and beliefs and not act based on your wrong assumptions. Wrong assumptions may not encounter odds during a long retirement. Solid Retirement Plan will fight all odds. If you can make appropriate adjustments, you’ll reduce your chances of outliving your savings. Simultaneously, you should take care of your health and emotions. If you overcome strain, the anguish will go away and you can lead peaceful life. It’s better not to surrender your life. Rather, define your quality of life when you don’t have any earned income and after all, you may need a professional caregiver. My recommendation is to spend some time to search for a professional Financial Planner who can help you with unbiased solutions.
“All you need is the plan, the road map, and the courage to press on to your destination.” – Earl Nightingale