Planning for better retirement days

Planning for retirement is always tricky. It’s also difficult to arrive at a possible outflow required on a monthly or regular basis post-retirement years. This is exactly the reason why retirement planning requires a long-term view with a periodic revision or revisit. The complexity is increased due to so many uncontrollable and unforeseen factors, leading almost close to the heels of the retirement itself.

• Retirement planning is always tricky. It’s also difficult to arrive at a possible outflow required on a monthly or regular basis post-retirement years. This is exactly the reason why retirement planning requires a long-term view with a periodic revision or revisit

Inactive years or during the work years, the golden rule for investing or savings is to allocate at least 20 percent of the earnings to savings/investing and then about the rest for spending. In here, about 60 percent is allocated to the lifestyle expenses like utilities, house loan/rent, commute, insurance, food, health care, credit cards, etc. and other such essentials.

The remaining 20 percent would be allocated ideally for discretionary spending on entertainment, dining, charity, gifts, etc. This 20 per cent-60 per cent-20 per cent, though is not a cardinal rule is theoretically precise and practically viable strategy. So, would this remain same during the retirement or would there be any deviation in the allocation post retirement.

The important factors that influence this are the health of the individual, place where one stays or opts to stay, of course, the envisaged or aspired lifestyle choices and the discretionary spending one would want to incorporate post retirement. These drive the amount required for the retirement corpus, longevity of the fund or sustenance of the pension or income and the quantum of inflow from the corpus.

But, one could, however, plan to see some deviations to better prepare these changes. For instance, though there is taxation on pension income, the primary motive during the retirement years is not savings. This is due to the lower incomes, lack of necessity to save and the high requirement for consumption.

Of course, taxation continues to haunt, but the 20 percent could be altogether wiped out or reduced drastically. Now, come the larger section of the essential requirements that was earlier allocated with 60 per cent of the inflows. As the transition to retirement takes up, so are the items that are assigned to the outflows during these years.

The key outflows of mortgage, loans, credit cards are aptly replaced by the health care costs. It’s almost easier to extend the lifespan by maintaining the good lifestyle, which comes at a cost, or with a good health care system, which is turning expensive every year. Within the health care costs, the earlier unimportant items figure up like that of the dental care, organ replacement, prolonged medication, nurse or assistance costs, increased insurance premiums, co-pays, deductibles, etc.

It could be extremely difficult to exactly estimate the costs but one could approximate from the family history and the current lifestyle choices/trends. The state of health is something hard to predict and hence a higher allocation could be better. Another important issue most individuals ignore or forget to include in their planning is the ancillary service costs like property/wealth management, etc.

While planning for the inflows, most people account for the rental income, dividend payments, etc., but fail to mark up the costs of ensuring the continuity or outsourcing these services. These services provide the much-needed sense of peace but come at a cost. The remaining 20 percent of the discretionary spending would also make for a transition as one might not find the energy or interest still running to pursue those hobbies that were part of it during the work years.

However, there could be some of these that, if one were to retain, then the planning has to contemplate these expenses separately. Even though one were to endure these set of hobbies or expenses, the frequency of it has to be deliberated. That provides a comprehensive approach. So, once one takes a hard look at these matters, the corpus would need to be reassessed.

Then one need to also see if the current savings would lead to that or a plan to increase the savings to meet them or drop one or more of the discretionary spending during the twilight years. Hence, a periodic look at the retirement planning would make for an accurate quantum that suffices for budgeting for most of the needs and desires.