How to prepare for the “new normal” in retirement planning

Last Updated on July 22, 2021 at 8:19 am

In the ten-plus years that I have been making retirement calculators, I have received several questions on the inputs: what inflation rate should I take after retirement? What return should I assume before/after retirement? How should I account for current expenses? What should be life expectancy? And so on. One question that has never been asked is, what should be my retirement age? This article discusses why the gap between normal retirement and early retirement is fast closing and how we should prepare for this.

Normal retirement was once age 55 to age 60 even in the private sector – many older employees were often referred to as company men. Today, except for academics and civil servants, no private sector employee, however compliant or diligent, is guaranteed to be in service past 50 or even 45 in some sectors.

Even if the management wants us to stay, the stress and closely related poor lifestyle choices will push many corporate employees to voluntary retirement. I recently took my mom for her second vaccine dose to a corporate hospital. Everyone else in line was from the same company, and all of them were quite young. I was shocked to see that almost all of them were rotund and out of shape.

So 50 seems to be the new retirement age from a salaried position for the average joe, and early retirement from a salaried position has to be at least 10 years earlier. Some would argue this has been the case for a few years now, but I routinely see corporate employees assume they will work until 60 while planning their retirement.

Retirement age here refers to a possible age when our salary from employment would stop and an age beyond which another full-time employment is difficult or unlikely. It is up to us to ensure all sources of income don’t stop at the same age.

Normal retirement today has been reduced by about ten years – even if this is not true for your sector, it would be better to err on the side of caution and plan for financial independence by age 50.

To be clear, the “new normal” referred to here means the need to be nearly financially independent by age 50. How long we remain salaried, what we do after that etc., is speculation, and we cannot bank on it.

There are two ways of doing this, and it would be advisable to consider both.

1. Invest as early as possible, as much as possible in a portfolio capable of beating inflation. Most crucially, if you are going to enter into debt (home loan, car loan), project future cash flows and find out how the EMI will affect your investments and how long it would take for you to recover (if you can!) after most of the debt is serviced.

Mose people get into debt without ever considering the impact on their future financial independence. If they also miscalculate their retirement age, it could be a disaster.

If you are 40+ and have spent a good part of your youth servicing your debts or if you have not invested for retirement in a structured manner, then the next step is crucial.

2. Use the skills and connections you have accumulated over time to build a current or future source of income. This can be a mix of active income from freelancing after retirement and passive income. This is much harder than starting a mutual fund SIP!

It primarily requires oodles of introspection; attending seminars and conferences in your field to appreciate future trends and how your skills can or cannot make a difference; appreciating the requirements of the target audience of your current job and how you can make a difference.

The more you sweat in peace, the less you bleed in war. – Norman Schwarzkopf US army General during the Gulf war.

This activity might act as a catalyst to quit your full-time job and take up consulting and freelancing at a leisurely pace. Those who have the luxury of some respectable networth by age 50 can indulge in their passions and see how it can be a source of income. For others, I am afraid the grind will have to continue even as a freelancer for some more time.

The new normal in retirement planning does not apply to the salaried alone. I see professionals like CAs and doctors proudly state that they can work until they die. What they mean is, they would like to. Whether life lets them or not is another matter.

Therefore considering the times we live in, regardless of your mode of employment, regardless of the typical retirement age in your field it is always better to assume that a regular salary would cease after 50.

Ideally, this means even if you work post-50, you should assume that you will not be able to invest for retirement after 50. If you started investing late or were burdened with EMIs for much of your 30s, you might need to invest post-50 as well.

Yes, this would mean investing more (the figures for retiring at 60 is scary enough as it is!) and maybe even trying to earn more today. The good news is, the lower the retirement age, the lesser the retirement corpus required!

Thus, the new normal in retirement planning is not just lowering the retirement age or financial independence age. Depending on your income, age and net worth it could also mean a second career post 50 to bolster the retirement corpus.

I would urge readers to sit down with their partners and project their future cash flow on a spreadsheet: Income, expenses, investments, EMIs. If they have not done so, they can consider a full retirement planning exercise. Here are some resources to get started:

• I am 30 and wish to retire by 50; how should I plan my investments?
• How much do I need to retire by 45 in India?
• Passive Income Template: Steps to build a lifelong income