When I asked my 70-year-old dentist what keeps him going, he told me it is foolish to quit when one is on top of one’s game. I can easily do in half the time, what my juniors will sweat over, he exclaimed. My 72-year-old cousin still travels to teach semiconductor circuits at private engineering colleges, for a fee he claims is higher than his last salary. Retirement can seem too early to some! Most like to spend the first 10 years actively.
It is a good idea to work for the first 10 years if one can. The income keeps flowing; and the mind likes the gradual transition from long hours of work to a leisurely pace. The portfolio also benefits from low drawings.
Some succumb to the temptation of big ticket spending from the large corpus to which they now have access. They will put their corpus to perils of erosion if they aren’t also adding to it. The bigger decision in the first 10 years is about the lifestyle one chooses after retirement. Depending on their risk preferences, people choose cautious spending or let go to indulge in travel, leisure activities and hobbies. It is tough in the early years to find the balance between what might be desirable and what might turn out to be extravagant.
For many, keeping expenses within income is a habit that is tough to change soon after retirement. Hence the preference to augment income. In terms of asset allocation, continuing to earn in retirement offers the twin benefits of low income needs from the corpus and being able to add to the corpus. Equity assets can be overweight in such a portfolio. Those with dependence on the corpus for income will hold a baseline equity of 20-30%. Severe rebalancing of the portfolio can be avoided by those who either have a pension income or have supplemented their income after retirement as we just discussed.
Hitting 70 seemed like a big deal in my father’s generation. They couldn’t be blamed for feeling somewhat old, given the life expectancy of those times. These days many live well into the 90s. The biggest concern at this age is health, if it had not surfaced earlier already. We live through times when metabolic diseases are very common; we have now added a few viruses to this list. If the swinging 60s involved cheating on diabetes with some sweet treats, the 70s hits one with a vengeance.
The corpus must prepare for lump sum withdrawals for health reasons. Apart from health insurance and support from the children, spending on healthcare and attendant expenses on home nursing care, medicines and supplies will also have to be provided for.It is still not common for the elderly in India to choose to write a living Will. It might make sense to decide how much invasive treatment of chronic diseases one is willing to approve. Not just for draining the corpus, but also for the demands hospitalisation and intensive care make on the time and efforts of the near and dear ones. Health insurance only gets costlier and unwilling to cover pre-existing conditions as one ages.
It makes sense to demarcate how much of one’s wealth one is willing to spend on prolonged invasive medical attention for self and spouse. Tough but a necessary call. Asset allocations typically turn conservative by this time. The portion that is reserved to be left behind is on growth assets like property, equity and gold. The rest is typically in income assets, both for the lower risk and for the ease of withdrawal without market risks. A gradual approach is better, where portions of equity are converted to debt over time.
Expenses on physical comforts tend to also move up at this time when one feels the need for being cared for. Many desire physical rest and better quality of life. Being picky and choosy about food is a recorded preference as one ages. Inexplicably the desire for the good things peaks before it drops off in the 80s or later. My friend complained that her parents in law have turned somewhat entitled. They would not sleep without air conditioning; they expect a chauffeur to drive them around; and won’t travel unless it is business class. These are the very luxuries the young crave for when they move up in their careers. But ironically the same preferences seem out of place when an elder asks for it!
We live in fortunate times when the next generation earns well and is willing to provide for their parents. There still are many that suffer lifestyle compromises in old age due to their personal and monetary circumstances. It pinches the most in the 70s when one does not feel too young to keep working but is also aware that there may be a long haul ahead.
Retirement planning must obsessively consider this decade of the 70s and explicitly and generously provide for it. If the 60s enable finding an earning pursuit, and the 80s offer solace from reduced spending, it is the 70s that burn at both ends. One part of retirement offers scope to earn; another offers the scope to not spend. But there is one segment that spikes spending without commensurate earning. Yes, these need not be specific 10-year periods.
Make sure your corpus is large enough to draw and fund that middle segment. A large enough corpus has these features: a portion of it is in equity and is growing, keeping the corpus large; the risks of this equity portion don’t impact income and drawings directly; a small portion can be drawn down and used without impacting much the income and growth of the unused portion; even if simply a portion is drawn annually it can last at least 30 years. The math is about averaging the three segments on retirement.
(The author is CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING.)