Financial Planning in the 70s and 80s is much more than merely managing your money, though money supply does remain a major requirement for most of the Indians. Issues like estate planning, withdrawal strategy from the accumulated corpus, medical management, getting the asset allocation right and catering for emergencies may become more important now than in any other stage of life. Also, anticipating future income and lifestyle needs is essential to make these years truly the golden years of one’s life. In fact, these later retirement years can pose sophisticated challenges to retirement planning and saving.
As per the Census of India organisation, current life expectancy of an average Indian is approximately 70 years at birth which, by the age of 60 years, increases to 80 years and by 70 years of age, it is 82 years. This data is for an average Indian. For an urban and more health-conscious Indian, it could be much more. Thus, purely from funding point of view, a bigger question that may stare large number of Indians at this age, especially those who do not have a good pension scheme for an adequate regular income, is whether they will outlive their corpus money? Nuclear families and shrinking habitats have also seen more and more elders living separately and catering to their equally elderly spouse on their own – support system afforded by the younger generation is evaporating fast. How can such elder investors anticipate and manage their family’s changing financial needs? The answer lies in a proper planning customised to each such couple.
It is very important to realise that the basic retirement problem has changed. Due to the longevity of life, there is a very active need to counteract inflation, thus needing a much higher return on investments than a pure fixed income portfolio can give. While fixed deposits, Government and post office schemes, and conservative pension schemes may have their own share in the portfolio, over the long haul, just these will not do. A certain amount of equity percentage in the investments is necessary at this age too if the purchasing power of one’s money is to be maintained against the eroding effects of inflation. Robert J Lovejoy, a US based Certified Financial Planner advices his clients that, “if you think you may live for more than five years, you don’t necessarily want to move all your retirement money out of stocks”.
Apart from the money question, nurturing own estate and ensuring that it passes to the intended beneficiaries in a manner as actually desired by the elderly couple, is also an important question. A carefully crafted Will preferably registered in a court, periodically passing on the assets to your loved ones through suitable gift deeds if the estate is surplus to one’s needs, catering for finances for medical needs which may become almost a weekly requirement, creation of Trusts through suitably worded Trust Deeds in case a relative or charity needs to be supported later, etc are all part of a sound estate plan. Help of suitable lawyers and financial planners needs to taken to ensure that whatever is planned and desired, does get executed when one is no longer around.
Thus, financial planning for the people in their 70s and 80s primarily boils down to the following:-
- Simplify your life by a clear financial asset allocation strategy and simple plans. While diversification is good to an extent, entangling oneself in managing too many properties, deposits, stocks, bonds, and other asset options may take sheen off an otherwise peaceful and stress-free retirement required at this age.
- Reconcile your cash flows and budget by realistically catering to the life you can actually live from now on. While lofty travel and entertainment plans will not work out, over-looking medical requirements and social commitments may cause financial and mental distress.
- Prepare realistic withdrawal plans. Act as if you’ll live forever! Make sure your monthly withdrawals from the retirement corpus and pension, if any, cater to the lifestyle and other requirements like home maintenance for a long time, at least another 20 years. This can become a balancing act between drawing down your savings too quickly and being left with little to live on in your 80s or 90s, or the opposite scenario of spending your income too slowly and needlessly crimping your standard of living.
- Leverage your house if the need be. Reverse mortgage is a very good option if you find that you are falling short of your requirements. Continually lowering your lifestyle just because you wish to leave the house for your children may not be the best strategy for you and your spouse. For all you know, they may not even need it!
- Design a sound estate plan that can protect you, your spouse, and your heirs no matter what life brings. Such a plan ensures that your assets go to the people you choose when you pass away or are permanently disabled. It may involve preparation of Will and keeping it updated, Gift Deeds, Trust Deeds, Power of Attorneys and nominations in investments. Ensure that there is a list of emergency information like medication, persons to contact, location of important documents etc available at hand and is known to all concerned.
Every investor’s situation is different. They may consider meeting with a financial advisor when doing their future retirement and estate planning so that the 70s to 90s become the most carefree period of one’s life.
Col (retd) Sanjeev Govila, SEBI Registered Investment Advisor,
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