Last Updated on February 12, 2022 at 6:14 pm
All retirement planning discussions focus on beating inflation, investing enough and managing the corpus post-retirement. However, there is more to retirement planning than using calculators and investing right. As regular readers may be aware, I have been creating and using retirement calculators for more than 10 years now and have seen the results change from “I do not have this much money to invest” to “you can retire today”.
During this journey, my approach to retirement has changed considerably due to age and circumstances that have taught me not to take our lives for granted. First, I assumed we could take the retirement corpus, invest it “somewhere” with a return above inflation and draw an income from it each year.
Then I realised the importance of segmenting the corpus into buckets and how to manage them. From saying “pension is not for me”, I matured into “pension is necessary but only one component of the retirement portfolio”: Creating the “ideal” retirement plan with income flooring!
Then I grappled with “how to change asset allocation before and after retirement?”, “how to fix the asset allocation for early retirement and normal retirement?”, “how do I distinguish a retiree who can take on market risk after retirement from a retiree who has to buy an annuity (pension) plan?”, “how do we come up with a robust bucket strategy that will protect early and normal retirees from corpus erosion”. These questions gave birth to the robo advisory template.
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I then focused on building passive income and how to build the ideal retirement portfolio. With the technical aspects reasonably in space, it is time to worry about other factors. One of the most influential movies in my life is, It’s a Wonderful Life (1946). When I saw it on the Star Network in the early nineties, I cried so loud that I had to bolt myself in the bathroom. It taught me that relationships are more important than money.
The movie opens with 38-year-old George Bailey contemplating suicide so that his family can pay his excessive debt from the life insurance settlement. We then look back at the life George has led. He constantly makes sacrifices to help his family and community.
He is forced to run his father’s building and loan business abandoning his world tour and giving his college fees to his brother. When he is about to set off on a honeymoon, the great depression hit, and there is a run on his loan business. They lend all of their honeymoon savings to the community to ensure both the clients and business survive.
The entire community comes to his aid by donating small amounts to pay off his debts. How this happens is the movie’s crux, and I do not want to give too much away. If you can find the movie, do watch it with your entire family.
It is not enough if we build ourselves a large retirement corpus. We need to build relationships – social capital if you like a fancy word. The way we treat our spouse, our parents, our children, their spouses(!), our relatives all our lives will determine how they treat us as we age.
And age we will. Most of us will never get close to our retirement corpus targets until we cross 50. At that time, thanks to job pressures and poor lifestyle choices, we could lose a good chunk of our health. Our dependence on others gradually increases.
We may say that we wish to be independent of our children after retirement, but it is not entirely up to us. To quote a line handed down across generations in our family, “having relations is one thing, having relationships is quite another!”
Do we respect our spouses, children, in-laws? Or we take them (and our own health) for granted? Do we allow them to chase their dreams, or do we try and keep them under our thumb? Do we help our relatives in their time of need? Do we help the community? Do we allocate money to charity?
All these will determine our lifestyle after retirement. Whether we manage to build that large corus or not, we must build as much social capital as possible. Unlike a retirement corpus, social capital will always compound, never get devalued by inflation and never fall to zero unless we decide to let it. We cannot hope to “enjoy” our money in isolation.