As organisations we need to classify people into buckets so that we can cater to them. For example mutual funds and life insurance companies classify distributors into different classes based ONLY ON THE amount of assets they manage. I have always felt that a person who has Rs. 400 crores from 23 clients is very different from an adviser who has Rs. 400 crores from 1800 clients.

Similarly when younger people (even older people) think of ‘retired’ people they mean everybody from age 60 to 95 – rather 60 to death. If you have retired at 55, then from 55 to death.

Sadly, if you are a service provider (or even an author trying to write for a big range of population), you realize that this is not true. Let me classify the ‘retired’ persons into 3 categories:

Retirement age (whatever it is) to age 72: this is about 12 to 17 years. I guess many of us may work till the age of 68/69 by lightening the amount of work that we do, and it will keep us socially busy too. In this period we are going to seek work, entertainment, gym, swimming pool, good medication, food, tours and travels, investment advice, etc. and not much is going to change in our lives from what we did in our 50s. We are likely to want to live in a city or town where we lived our later life and continue to have friends with whom we will entertain, and socialize. Obviously in this phase if you are not earning too well, you would have to depend on your pension, investment income, sitting fees, retainership fees etc. To me in this phase you dare not dip into your capital – these are early days yet, and I am assuming that you have just about enough for retirement. You need to live on investment income and earned income only. Most investors expect during this phase of  retirement they will go through a phase focused on increased travel and leisure activities, giving themselves a reward for all their hard work. This is their chance to do all the things that they always wanted but didn’t have the time, finish off items on their “bucket lists” or spend more time with their hobbies. Retirees monetary  needs during this phase are similar to the pre-retirement  phase, but with an even greater emphasis on cash flow/income stream now that they have less work income, and their spending is likely to increase, as they have more leisure time.

Age 72 to age 85: At this stage the travels are likely to come down – you may still travel to attend weddings and funerals, but at the same time acknowledging that travel is not really easy. At the later stages you may cut down the travel to just funerals. They may now need help around the house more than they needed when they were younger. Ability to comprehend difficult financial products, keep track of dividends, filing income tax returns, tracking bank transactions may no longer be easy. They will require help – preferably from the family. However if there is no family, whom are they going to turn to? It is better to make a team of 4-5 kids whom you know well to ask them to handle this task. Even people with one/two children should get a younger family member involved in this activity. It is a time when you can/should start a draw down from your investment buckets, and it is also a time when you should move to a very simple asset allocation – bank deposits, index funds, annuities, and savings bank accounts. Nothing more complicated. Make sure that the annuities and bank interest are enough for the day to day expenses. Income from earned activity is likely to be NIL and you will be dependent just on investment income and draw downs. You may want to live in a senior citizen home with a lot of facilities – please do your own research this phase is likely to be expensive, but you can sell your city house for a nice sum and use the capital for making the transition.

Age 85 to death: You will have to live in a geriatric care home, as your spouse will not be able to cater you all your medication and food needs. This phase of retirement involves living a simpler life and having time to reflect on one’s life and legacy. This period involves almost no voluntary travel, with family more likely to come visit instead of you travelling. This time is when you are in your 80s and beyond, coinciding with the “old” definition. This phase can be hastened by some illness or accident – even a bathroom fall when you are 80 can push you to this stage. Brings an increased emphasis on health concerns, it is not ONLY or just about the downward spiral of people’s last few years. In fact, most investors SHOULD expect this phase to last 10-15 years – and most of us  tend to underestimate how much they may have to deal with health issues. While we do recognize that healthcare and long-term care are the primary financial needs during this phase we tremendously underestimate the quantum. If you are hit by dementia, alzheimers, paralysis – remember these are NOT LIFE THREATENING illnesses you could live for say 10 years in this condition. Assuming you need to be taken care of completely this will involve about Rs. 65,000 per month. I am not going into the break up, but please now adjust this for inflation @ 12% p.a. and see how much money you will need when you are 82 years and live till 92.

Do not like it? Well, well.