Liquidity is important as you age…
Let us take the case of this very alert army man now 73 years of age. His wife is 71 years old, and are now wondering what next?
Most of us want to die peacefully and not really live too long and suffer.
Let us assume that these are their assets:
House in a crowded part of Mumbai : Rs. 3 crores
Mutual funds (equity) Rs 25Lakhs, debt Rs. 125 lakhs, bank fixed deposits Rs. 50 L and PPF: Rs. 35L
You have a small pension of rs, 18.900 – and is not indexed. Their expenses are about Rs. 40,000 per month including about Rs. 7000 building maintenance/society charges.
The question is SHOULD THEY SELL THIS HOUSE and is it time to monetize their biggest asset. They have NO children and are expecting their nephew to take care of them in their old age.
Now they have a choice of moving to Pune where they can buy a Senior citizen home for Rs. 70L. They can also get a house on rent – but clearly they are not interested in shifting houses in their old age.
What is your solution?
My solution will be published after I get 10 reasonably detailed response…PLEASE GET RESPONSE OF PEOPLE IN THE 70 AGE group. Many 30 year old people know how a 50 year old should live. Normally, wrong! So I would like multi age response. More weightage to older people who have handled this for themselves or for their parents….
Ramji
Subra Sir… Long time reader – first time ‘commenter’. Have seen variants of this.. Put the debt in a good, high quality debt fund. That should yield approx Rs 65,000 as monthly ‘yield’ (without touching the principal of course). Plus their pension of Rs 19000 should be about Rs 84,000. No change in house necessary.
Next step – sell FDs and part of Debt – buy annuities at 73/77 years of age perhaps..
Anil Kumar
Am a layman when it comes to investing, but i read your posts with great interest. With regards to this old couple, I guess it’s high time they should relax and stop thinking of acquiring more. Who are they saving for..Nephew? They should take up a beautiful countryside house and just spend their lives together beautifully. Btw, this point of view is from a 49 yr young man.
Krish
My age is 46. They are getting more than enough cash flow each month from 1.75 Cr of Debt Funds/FD without needing to touch the capital. No need to sell/shift the house as they don’t seem to have any loan. The only thing that I can think of is reverse mortgage should they need substantial monthly income due to any health issues. I am unable to see what is the issue is here.
Harsh
As others have mentioned, monetary wise they should be okay. However, at old age they will definitely need some help. They are relying on their nephew for any help. First they should check if their nephew is willing and capable of providing help. The nephew might have his own parents to look after (and perhaps his in-laws as well). At old age, minor accidents such as simply falling down might make one bed ridden for months. I think they should not rely too much on their nephew and move to a senior citizen home in the same city as the nephew. This way they can get decent help should the need arises and the nephew can step in whenever truly required.
Mohit Goyal
My response (35 year old, FAT FIRE enthusiast at 40) —
Tangible assets: 3cr house, 0.25cr equity MF, 2.10cr debt (fd, debt fund, ppf).
cashflow: 18900 INR per month income, 40000 INR per month expense
Debt monthly income (7.5%): 131000 INR
so net positive cashflow: 18900+131000-40000 = 1.1Lac INR per month!
Clearly they do not need to sell the house for cashflow purpose.
However, they still need to sell the house for community living, better old-age care etc. Sure the nephew is a saintly guy, but why “burden” him with a responsibility? Instead, live in Pune and give him a visit every couple of months. He’d be pleased to host you and not see you as an “athiti kab jaoge” …
Sell the house for 3cr and buy Pune home for 70L. Out of 2.3cr profit, invest 1.25cr in equity MF and 1cr in Debt.
So new portfolio:
home equity: 70L
equity MF: 1.50cr (modest 10% yield per annum compounded and goes to nephew as inheritance. If things go terribly wrong later in life, then liquidate it to fund self – so DO NOT commit the inheritance).
debt investments: 3.1cr, yield 7.5% pa or monthly 1.94L! Add 19K pension and you have a monthly income of 2.10 LAC against an expense of 40K!
reinvest the surplus 1.7L per month in –
* philanthropy
* exotic travel/ experiences for self and spouse
* buy highest quality organic food!
* gifts for nephew and other friends/family
Hope this finds takers..
filmybabaji
He has a risk to live beyond 100 years, That is 30 years. He should move his current corpus to 40-50% equity and remaining FD and debt.
At his age of 75-80, he should sell his house and get take immediate indexed pension and move to a retirement home.
Longevity risk is a biggest risk. Everyone ignores.
Gov
Having handled such scenarios for parents, in-laws etc.. I think the X factor is where the nephew is and how his view of this situation is. If the nephew is truly willing and loving to take care, it makes sense to downsize and shift close to him. Buy a place that’s close but not closer (living together etc. is a no-no).
Cash flow needs seem OK at this point but the Y factor is health & health issues and what happens to the lady if & once the alert man passes away (lot of ifs etc.) so downsizing and cashing in on the home to a smaller place does make sense at some level so they have a larger medical corpus ready.
So it’s a complex answer based on his relationship, nephew’s location etc. The good thing is that they are better placed than most Indians.. so should ideally be happy and content. Good luck to the couple, and thanks for the army service!
Adarsh
Simple solution. Employ a good care taker / home nurse. Stay where they are as they may have good friend circle. Consume the 2.3 crore fund for living for another 30 years. (at 3% withdrawal rate).Pass on the house to the nephew. I prefer passing on the hard assets like land, house, jewellery to the next generation and consuming your hard earned paper assets in your lifetime.
CK
Out-of-the box thinking!. Option #1: Sell the house for 3 Cr. Negotiate deal with a 4 star or 5 star hotel and lease a double occupancy room at the rate of Rs 5,000 per day (boarding inclusive. they may just need some kichdi, dal_chaval, fruits and light stuff) for 15 years. Make upfront payment. It works out to be approx 18 lakhs per annum. In a hotel environment, everything they need will be at their disposal 24/7 including doctor on call, room cleaning, room service, local transport, laundry, emergency help etc., At the end of 15 years MF and Debt corpus would have compounded enough to be used to renew for another 15 years. No hassles and peace guaranteed. Their nephew can still help them by visiting them for occasional get together. They can nominate their nephew for MF and Debt holdings. Option #2: Sell the house for 3 Cr and buy a flat of smaller size nearby and invest the remaining amount in immediate annuity. Spend the annuity payouts,reinvest and/or give away to the needy. Let MF/Debt continue to grow and nominate the nephew (as he is committed to take care of them). Option #3: Continue to stay in the same house, request the nephew to move into this house now itself. Start SWP from MF/debt assets to make-up for the short-fall in monthly cash flow. Keep FD and PPF for emergency use. Make a gift deed or will in the name of nephew to transfer the house after their death. Nominate nephew for all other assets.
Lakshmi
I’m just 30.My point of view is they need to sell the house but selling a 3Cr property( though the house is in crowded place) is not an easy thing.It may require 6 month-2 yr time.till then they can touch the equity,MF,debt.Let the FD,PPF be as such.Once the house gets sold they can buy( which is again not easy) or rent a house and invest some in equity or MF or debt whichever they wish.
DR
Seen my uncle and aunt of similar age shifting to senior living in Coimbatore. Only aunt has pension. Uncle was in the pvt sector with no pension. Good mediclaim policy. Their kids are all in the US and will not return to India.. though they come once a while to meet. They moved from a flat of a non-lift building to higher floor of a lift building. Aunt had to go through a knee surgery. Uncle had to go through cataract operation. Children had come for each occasion and stayed for couple of weeks. Building had everything in proximity – Temple, Provisions, Veggie vendor, Chemist, Bank, etc. Still they took a call to move to Coimbatore. They are happy living there with good social life. Senior citizens want to life an independent life doing what they can themselves. Medical facility in close proximity is a must have.
Santy
Have seen my uncle (Periyappa) do this. Had a successfully running factory in chennai with a nice house at Adyar. Son-in-law was not willing to take the business and settled in US. He had an accident where both him and wife were injured. Friends and family came and visited and went off after few days. He had to struggle to manage his wife (more severely injured) and his 85 year old mom. After tha, he sold off his assets, moved to a community living in Mettupalayam. The facility provides assisted living but he is healthy enough and hardly need any of the stuff. But he is prepared for future if something happens to him or his wife.
I dont think the question here is about management of money but how they can plan to live. The couple in question can comfortably live with the resource but they lack the support if something happens.No number crunching in this answer.
panaman
It is purely depend on individual’s metal and physical health and attitude towards money. These are general ideas that could save
but choice is based on individual.
Simplify holdings unless Nephew is able to handle finance.
At old age, people may have problem handling even slightly complex things. Get rid of complex products and credit. [Having money in SB account but forgot PIN.]
At prime age, go for annuity or fixed deposit with monthly interest payment. Though it is tax inefficient, it gives them peaceful days.
Maintaining health is much more important than asset allocation at this stage.
Moving to old age home(serenity) is a good decision as they can be independent and avoid minor accidents that can put them in jeopardy. They get help and health assistance. They can spend time similar age people.
Take financial decision together. Keep nephew informed.
If they are having good health, they can go for pilgrimage or world tour as per wish.
At retirement, people feel more time available, some hobby, consultation business, teaching, social work etc. can be come in handy.
Planning estate or charity is purely individual thinking but should be done.
Make plan what other should do in the absence of first one. It is personally difficult. Otherwise, surviving spouse have to go through tough time though they have money.
SS
Hi Subra sir,
My answer: NOTHING!!
Explanation: Sometimes the best thing to do, is nothing. 🙂 They have already planned it well.
We need to take the age of younger member – 71 year old. and let us assume 100 years as life expectancy.
They have 3Cr house in Mumbai – Write a will for it and Ignore this asset! It is for Living purpose.
They have 25L in equity. Assume modest 10% returns until she turns 85. Do not touch this until then. @ 85 it will be 95L.
expense 40K p.m = 4.8 L.pa. Let us assume inflation as 10%. Then until 100 years the total need is 7.90 Cr (inflation adjusted).
They have 125+50+35 L in various liquid assets. Let s assume they return 8.5% returns as they are senior citizens. (if you think it high you have to move a small portion to equity)
2.10Cr will yield 18L.p.a in initial yr and initial expense is 4.8 Lpa leaving 13 Lpa to add back to your 2.10Cr. If you drag it down the excel sheet, and @85 yrs age, add the 95L to 540 and drag it further down to 100yrs, the NW will become 0 at the end (at 100 yrs).
Of course This is just the financial aspects in excel sheet only. It does not take care of emotional things – ageing, inability and other health issues, nephew relations etc. where even if you have money, it cannot help. Neither can a financial advisor.
sheetal sane
Sir my answer :
House worth of Rs. 3 Cr : to keep as is. At their age, its more important for them to live the area where they feel comfortable and lively. Its the biggest security for the aged people.
MF : this would fetch good yields to take care of their monthly expenses
Pension : to be used for their monthly expenses
Their Fund adviser need to churn timely Debt / Equity composition (atleast to match inflation) so that expenses will be taken care from pension amount of Rs. 18.9K (not indexed) and balance by redeeming low yield MF holdings.
Subra Sir, your narration is silent on medical coverage. i presume its taken care.
This couple having sound financial health and I pray they remain healthy.
Thanks,
sheetal
Vikas Rana
Simple solution. Employ a good care taker / home nurse. Stay where they are as they may have good friend circle. Consume the 2.3 crore fund for living for another 30 years. (at 3% withdrawal rate).Pass on the house to the nephew. I prefer passing on the hard assets like land, house, jewellery to the next generation and consuming your hard earned paper assets in your lifetime. See how you can invest on your assests wisely to get the maximum output here: https://bit.ly/2OK8Qzi