Last Updated on July 4, 2024 at 10:07 am
One of the common retirement planning mistakes is to underestimate monthly expenses. If someone asks me about my monthly expenses, I list the usual big-ticket items, like groceries, vegetables, petrol, medicines, etc.
If pushed a little harder, I recognise that it is better to consider annual expenses and compute an “average monthly expense.” The most common annual expenses are health insurance premiums (which get bigger and bigger with age and lack of insurer profits!), vehicle insurance premiums, annual holidays, etc.
This is a much better estimate but is still far removed from reality. More and more of our lives are controlled by technology and gadgets. Today, we cannot survive without the internet, laptops, and mobile phones. These, along with older-gen appliances like TVs, washing machines, geysers, etc., break down occasionally.
Every year, we would replace at least one of these, sometimes two of these. And each time we buy, we may be forced to buy an “upgrade”, costing more and breaking down more often. These expenses are often not included in the average monthly expense estimate.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
We assume these are occasional expenses, but at the rate we use gadgets, they are more of an annual affair. How do we manage these expenses?
No, the answer is not the emergency fund. That cannot handle recurring expenses. Before retirement, we could manage because our source of income is usually greater than our expenses.
What about after retirement? If we dip into the corpus each time a gadget breaks down, our corpus may deplete faster than expected.
Ideally, those with a lot of time to retire should account for at least one gadget/appliance change each year and suitably increase annual expenses while computing the retirement corpus and investment needed to achieve this corpus.
But is this practical? Even without accounting for such expenses, a retirement plan is quite scary. And most investors are disillusioned. Is there an alternative?
There is, but it should be viewed as a supplement or a complement to a robust retirement corpus (which, when built over decades before retirement, is our best defence) and not as an alternative.
To address this, we shall ask, how can I ensure my income is always greater than my expenses all my life? Before retirement, our employees will take care of this. After retirement, it would be great to have a source of active and passive income to handle big-ticket expenses. This is the best insurance (in addition to a large corpus).
Rent and dividends are the most common supplemental income for retirees (a pension or annuity is usually part of primary income). However, these also require capital to set up initially.
Individuals can leverage their skills and gradually set up a platform to earn active and passive income after retirement. This will strongly support the corpus (which should be planned for without depending on this income) and take care of gadget replacement nicely.
It is difficult and could take 5-10 years to get going. This is why retirees should plan for this well in advance. The most important benefit is that retirees would be using their time productively. They would still feel useful, and it can also positively impact their health.
The following resources can help you get started:
- Passive income is a crucial part of your retirement plan: How to get started
- Passive Income Template: Steps to build a lifelong income
- How to earn one lakh a month passive income?
- Passive Income Automation: An Example
- How to build a second income source that will last a lifetime
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr 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.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)