Better not to remain conservative while planning for the retirement

The idea is to work longer if not formally but in a consultative or mentoring roles. This stint isn’t meant to be for wealth accumulation but purely for intellectual pursuit and if it does pay, accept it

Living too long and dying too soon are the two most critical aspects that financial planning tries to address. While living short could be tackled relatively easily through life insurance products, the former is a big conundrum. Arguably, the greatest concern of any retirement plan is living too long or not having planned for life beyond a particular age. Most planning is done if a particular lifestyle is achieved for a prolonged period or till the estate is transferred. Usually, for the estate to transfer, it’s usually assumed at the possible average lifespan or may be a bit beyond.

Even in an extreme case of considering till age 100, what if the person survives beyond age 100? With the medical advancement each year, the possibility of living long increases every year. It means, the corpus created for retirement should sustain far longer period than it was accumulated in. While a typical productive (earning) period of about 30 years, one could contribute towards the retirement and thus the accumulated corpus should sustain for a period of at least 30 years and much more.

Mind you, one may avail loans for almost all needs during their lifetime except for retirement. Everyone finds collateral in the future cashflows or possible earnings of an individual, which is absent during retirement. Though, reverse mortgage and life settlement funds could be the closest similarity to a loan during retirement. The latter is not yet available in India. This possibility also evaporates the chances of passing any estate to the next generation.

So, it’s important to not remain conservative while planning for retirement. The corpus should include the possibility to outlive one’s own expectation and hence the need to accommodate such extreme events. The average life expectancy of Indians has been on the ascent. For the record, the average life expectancy was about 45 years in 1960 which has gone up to about 71 by 2020. Similarly, the proportion of elderly population has also been on the rise. From 5.6 per cent in 1961 it has increased to 8.6 per cent in 2011 and 10.1 per cent in 2021. It’s expected to occupy about 13 per cent by 2031.

All trends point to the possibility of growing lifespans across the populations. According to a survey conducted about a decade ago by SRS, Sample Registration System under the census office, on average Indian male will live for another 17 years and a woman for 19 years after turning 60. This is the average and varies across regions and States. And since then, the overall economic conditions, accessibility to health, etc. vital for the longevity have only bettered.

What should be the plan? Postpone the retirement? Just last week I’d written about FIRE (Financial Independence and Retire Early) and now talking about delaying retirement! The idea even in FIRE is to have a clear focus on what to do post-retirement. Not all individuals would be physically or mentally weak by the time they retire. So, the idea is to remain in productive form, if not through, an active employment. While there’s no age restriction for becoming a member of the provident fund, an employee who has attained the age of 58 can’t become a member of the pension fund. This is the regulation at the Employee Provident Fund Organisation, EPFO. Similarly, the upper age limit for National Pension Scheme, NPS is 70 years.

Truly, formal employment and the daily grind of work hours mayn’t be inviting for those at the higher ages or particularly in 60’s but instead of completely turning inactive, one could find engagement in their work-related or interest/passion-related activities. Of course, one should be wary of the fact that they don’t enjoy the functional mobility and physical agility of their younger self and act accordingly.

The idea is to work longer if not formally but in a consultative or mentoring roles. This stint isn’t meant to be for wealth accumulation but purely for intellectual pursuit and if it does pay, accept it. The immense experience and wisdom attained in over three decades is very valuable for the beginners. Also, pursue passions by volunteering, part-time work, etc. to keep engaged both physically and mentally.

If compounding is an eighth wonder, then inflation is an equally potential wealth destroyer. Make sure that your hard-earned money (corpus) creates a real return i.e., discounting inflation, so an equity exposure is a must at this age too. The proportion, however, varies with the risk appetite. While creating an enormous corpus is important to sustain the lifestyle, so be vigilant in spending particularly in the 60’s, if one were to live longer. No, I didn’t mean to stop ticking the bucket-list as long as they’re well provisioned for. What if one were to die early despite all this planning, it could be turned into estate or trust of your choice. So, it’s important to build your live version of life into your retirement plan.

The author is a co-founder of “Wealocity”, a wealth management firm and could be reached at [email protected]