10 Basic Retirement tips – long forgotten!

You have heard them all, have you not?

Start early, save regularly, investing in fluctuating assets like equity when you are young – then shift to bonds by the time you are 55…etc.
However what use is this advice if you are 53 already? And suddenly it dawned on you that you have not done much for your retirement?

Well for starters, start!

Starting is very important – earlier the better, but better late than never.

Let us look at what can be done:

1. Stop worrying about a MAGICAL number that will allow you to retire: Indians are very good at living within their means. Unlike an American we use the public transport, we cook most of our meals, our cable tv is not as expensive –so do not be worried about how much you need.

2. Of course learn to live on less: If you do not have adequate money (as estimated by you or by some friend – NOT BY A PLANNER) start living on less, it helps. Generally finance professionals over-pitch the retirement amount required.

3. There is no INDIAN rule about how much you can withdraw from your total corpus: In the US for a very long period they have had a 4% withdrawal rule. It says over a 30 year period if you do a 50:50 debt and equity portfolio, you are in a safe harbor. However in India there has been no great research so you have only your own gut feeling to live with. Yes it looks like a 5-6% withdrawal in India should see you through – but hey we have inflation of 10%p.a.!

4. Remember simple things like PPF, dividends, long term capital gains, agricultural income are all tax-free, whereas bank interest, rent, annuities, etc. are all taxable. Makes sense to plan your income accordingly. There are some important ages for ‘taxability’ – like senior citizen limit etc. Be aware of these provisions while planning your cash withdrawal.

5. Indians never had social security, so you would not have planned for it, right? Subsidized rations, free water, cheap petrol, learn to live with all subsidies going away! Medical expenses are best avoided – choose your life style accordingly – however prepare for real big medical expenses. People who are earning will be compensated in terms of a higher salary but you will have to provide for all this from your pension.

6. No clue why but most pension calculators stop at 60! You will retire at 60 and live till say 85 yrs. So inflation up till retirement is fine, however you have to provide for inflation TILL the death of the couple that you are trying to protect with a pension. And in some cases beyond 85 years too 🙂

7. The number at which you will feel comfortable is to create various cash inflows. If you have a combination of interest, dividends and rent, you are better off. This is because rent and dividends will protect you against inflation and interest can be large enough for you to take care of your day to day needs.

8. Talk to your spouse about what you are doing, and why. Remember if you drop dead she may not know why you had 4 balanced funds, 5 MIPs, 5 funds investing in the large cap stocks, etc. etc. Tell her why you have done what you have done. If she finds you irritating – remember your portfolio may need a revamp.

9. Plan for a long life. I know a man who thought he will die at age 78 (helped by astrologers!) is a bored 87 year old….and counting. If you are 62 years old, chances are you will live another 20+ years. It requires tremendous physical, financial and psychological preparedness for this. Remember women live longer than men.

10. Have a plan B: ‘Do not buy an annuity when you retire’ is a piece of advice all planners give. Apart from the way planners are remunerated, there is another genuine reason why this advice is worth listening to. Even the best annuity in India pays only 6.7%p.a. if you try to buy an annuity whey you are about 60 years of age. However as you age, the same annuity can look very attractive. So at 70 it might be worthwhile buying an annuity…same when you are say 75. Do consult friends, strictly fee only planners (who do not do transactions at all), while arriving at a decision.