I retire in 5 years but may not have enough funds: How should I plan?

Published: August 2, 2021 at 8:25 am

Last Updated on February 12, 2022 at 6:13 pm

A reader who wishes to be anonymous asks, Hello, I was avidly reading about your answer to a 30-some reader. It was surprising that you need an 8+ crores rupee to sustain a lifestyle with 40000+ monthly expenses.

And I am very worried (despite living in my own house-fully paid up, owning another property worth about 1.8-2 crores currently in case of need for retirement purposes-which fetches only Rs.9000 rent a month) because I am already 55 years old. I might retire with some 30-40Lacs from PF, NPS.
I am left with 5 years to save assiduously, and I invest in the stock market to benefit from the compounding power of investment only last 1-2 months. I can save/invest about 2 lacs a month, but even a fair 30% aggressive CAGR won’t help me reach the 8 crores corpus you proposed. And on top of that, I know you recommend people near retirement not to invest more than 15-20% in stocks.
What are my options? I know you are not doing financial planning, and I don’t intend to go to any as well, but since my situation may not be unique and many may be interested in your thoughts in such cases, I thought of writing to you.
If I have no hope, I don’t know how else I should have managed myself. I have always been saving money, investing in the above-mentioned properties. I could have invested in stocks instead of a property. I see a gap there. But it is too unpredictable to risk big money in stocks, isn’t it? So, is it worth investing now all the money in stocks in my case to catch up? If not, what percentage should I consider?
Let us call this reader Mr S for convenience. First of all, the article that got the reader worried is this: I am 30 and wish to retire by 50; how should I plan my investments? Second of all, he has made the mistake of assuming that the calculations for a 30Y retiring 20Y from now apply to a 55Y retiring 5Y from now. Third and most importantly, Mr S is not in such a worse situation as he imagines. There is considerable hope for him.
Several key inputs are missing in the question. Therefore I strongly recommend Mr S immediately consult a SEBI registered fee-only advisor from my list.  For the sake of assuaging him, let me make an approximate calculation. If I assume that his current expenses are about 50,000 a month with another 50,000 as annual expenses thrown in and inflation assumed to be 6% (I would prefer 8%, but you have to play according to the pitch!), the corpus required would be about 1.77 Crores with investments into an asset allocation of 80% fixed income and 20% equity – calculated with the robo advisory template.
If I assume that Mr S has no net worth, then the amount to be invested in a portfolio of 80% fixed income and 20% equity is about Rs. 2.35 lakhs a month (this includes mandatory EPF deductions), quite close to what you can invest now. Kindly do not put it all in equity! Please stick to a fixed income heavy asset allocation.
If we include existing investments, the corpus and total investment will further decrease. For example, if we include the Rs. 9000 a month rent, the corpus will decrease to about Rs. 1.75 Crores (not a big reduction, but we are clutching at straws here).
Considering the low rent, Mr S can consider selling the property (but may get less than he thinks he will!). This will instantly boost his financial independence levels. Apologies for pointing this out but, this kind of asset-rich, cash-poor kind of situation in our 50s would be inevitable for most people chasing after real estate in their youth -one home loan for self-occupied property and another as an investment.  This may not be fully applicable to Mr S, but the situation is quite common.
In summary, while the situation does not look as bad as Mr S has imagined, he needs to consult a SEBI registered fee-only advisor for proper guidance immediately. He should not make the mistake of putting all investible surplus into equity and stick to a fixed-income heavy asset allocation. He must also be ready to sell his second property if the need arises in future. In addition, any supplemental income from freelancing can make a big difference. See: 7 Proven Steps to Kickstart Your Freelancing Career.
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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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