The two retirement planning challenges that keep me up at night

Published: May 24, 2022 at 6:00 am

A reader writes, “Congratulations on freefincal’s 10th anniversary. Looking at the body of work the site has published over the years, I wonder if there is any new ground left for you to cover in personal finance or will you only rehash old content for new audiences?”

Although a touch insinuating, it is an interesting question that I often worry about.  Our focus is on process-oriented content (goal-based investing, retirement planning, portfolio rebalancing etc and not product-oriented content (Mutual fund NFOs, reviews etc.)

Experience has taught us that (1) product-related content is necessary to draw people towards our process-related content and (2) there is nothing wrong in “rehashing old content for new audiences”. In fact, rehashing is essential to stay relevant.

No one can ever cover the entirety of personal finance. So there will always be new ground to explore. Considering this is an ever-changing domain, just covering new products and new legislation (tax rules, SEBI rules etc) is enough to grow the site by attracting newer audiences.

However, this is not enough to answer the key question that drives me: can I make a significant contribution in this area? Retirement planning is one of my core interests and that comes with impossible challenges.

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We could divide the entire retirement planning process into four areas. We have “done something” reasonable in the first two areas but there is so much more to do in the last two.

  1. Accumulating a retirement corpus- ages 18- 40
  2. Managing a large retirement corpus
  3. Accumulating a retirement corpus- ages 40 and above
  4. Managing a not so large retirement corpus

The first item is trivial (relatively speaking); The second item is a “happy problem”. Regular readers can attest that we have plenty of resources and tools to handle both these situations.

Accumulating a retirement corpus- ages 40 and above: Here people would have about 15-20 years of fixed income (EPF, PPF, insurance policy) investing. If their income is not high, the chances are they would end up short of a comfortable retirement corpus.

They typically have no capital market experience and do not have much time to get some considering people to start retiring above 50 these days – How to prepare for the “new normal” in retirement planning.

How can we make them appreciate inflation risks and investment risks and recommend (generic) products and suggestions is a problem that keeps bothering me. Many readers in this age group contact me for personal investment advice and some ask me to write articles.

I direct all of them to our List of Fee-only Financial Planners in India (SEBI RIAs) While this is indeed the best choice for this age group, some generic suggestions will not hurt. This is something, I need to work on.

Managing a not so large retirement corpus:  If the corpus is large, trying to beat inflation is not so hard. If the corpus is too small, then an annuity is the only choice. But what about when the corpus is neither too large, nor too small?

This is a grey area of retirement planning. The thumbrule we have used for the robo advisory tool is, (a) “the retiree should be able to generate inflation-indexed income for 15Y” with fixed income and (b) “have enough that can be invested for such income” in latter years.

This is a rather stringent but safe rule that accounts for the sequence of returns risks in retirement. There are several questions that arise here:

What if the total corpus is only 75% of the required corpus (satisfying conditions a and)? What if it is only 50? How do we allocate resources for such cases? When do we draw the line and say the corpus is too low to take a capital market risk (incl debt mutual funds)?

Currently, the robo tool offers a DIY bucket strategy option to those whose corpus is less than the required corpus. We also offer unconventional DIY asset allocation options post-retirement in our goal-based investing course.

The goal is to try and improve the bandwidth of suggestions provided after retirement to cover retirees with a less than desirable nest egg after extensive testing.

The first step towards this is to include better retirement tracking metrics in the robo advisory tool answering questions like “Can I retire now?”; “If I retire now, how long will my money last? What approach should I take?” Etc.

Let us see how it goes. There are similar problems in other areas of personal finance (a better health insurance selection tool for instance) but these two retirement planning problems (the 4th more than the 3rd!) keeps bugging me. One step at a time!

Ps. All existing robo advisory tool users have been sent the latest version including income flooring and annuity laddering retirement planning options. Please check your spam folder if you have not received it. Please add pattu {at} freefincal {dot} com to your contacts  list. In case you are wondering, users, will receive all future updates for free!

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About The Author

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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