I recently spoke to a group of employees about retirement planning. I was told that the group would mostly comprise young people in the 30-45 age bracket, but as always, there was a good chunk of older people in the audience.
They were left shell-shocked to see some sample retirement plans – the corpus required and the amount required. They had never seen or done a proper retirement planning exercise before. I addressed the concerns of the older audience after the talk but felt an article might help someone in the same boat.
We cannot always blame or judge the individual for failing to plan. Many often get caught up in the family web and spend a lifetime caring for their siblings or parents, nursing a home loan, paying for college tuition, etc.
The past is past. No point thinking about it. Let us get into what can be done now for such individuals.
1. Take care of your health. Time and health constitute true wealth. So, there is little time left to invest and take on some risk, but you have to hang on to your wealth. Eat better, sleep better, live better. Get periodic tests done, etc. Prevention is the best cure. If you need to work for a few more years, you need your health.
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2. Evaluate your expenses. Determine the minimum funds necessary to live a lifestyle as close as possible to your current one. Use an inflation of at least
3. Evaluate your current investments. Find your current total retirement corpus. Tag some of your investment to retirement and try not to change tags in future.
4. Evaluate your retirement benefits. You should be able to get a ballpark estimate of benefits like gratuity, leave encashment, etc., as applicable. This could be a sizeable chunk. Add these to your corpus.
5. Evaluate your post-retirement income sources. These could be an employer pension or annuity, rental income, dividends, etc. These will significantly contribute to handling expenses after retirement.
If you want to use a calculator that considers three income sources and retirement benefits with customisable assumptions, you can consider the freefincal robo advisor tool.
6. Estimate your initial withdrawal rate. This is defined as annual expenses in the first year of retirement dividend by the total corpus available. You can use a 4-5% inflation and a reasonable rate of return on your investments for this.
If the initial withdrawal rate is higher than 4.5%, then a pension should be the most important component of your portfolio, and you probably need to find work after retirement. See: Is it Possible to Gauge Post-Retirement Equity Exposure without a Calculator?
7. Plan your second career today! List your skills that could help others, list your passions and find an overlap to turn your skills into income.
Don’t lose heart. With some adjustments in your calculations, lifestyle and plans, you can make it work. It won’t be easy, but then what is?! Forget the past and act now!