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| Capitalstars Investment Advisor |
Human life expectancy has been increasing rapidly because of better health care facilities, hygiene, ample food, and increased access to life-saving drugs. The number of persons aged above 80 nearly tripled globally over the past 30 years and stood at 143 million in 2019. It is expected to triple to 426 million by 2050 and then double again to 881 million by 2100 (Source: UN World Population Prospects 2019). By the end of the century, one out of every 12 persons in the world is expected to be above 80 years of age. While planning for retirement, most people usually assume a life span of 70-75 years. The average life expectancy at birth is 69 in India. While this assumption may appear reasonable, the devil lies in the detail. Life expectancy rises to 76 years for urban dwellers in the top quintile based on income (BMJ Global Health 2019). Also, if a person belongs to this group and is already 60 years old, his life expectancy rises to 81 years. About 30 percent of people from this socio-economic group are expected to cross the age of 85. Based on these numbers, it seems reasonable to plan for expenses until at least the age of 90.
Start early to win financial independence
To live the lifestyle that you desire during retirement, earning financial freedom is of utmost importance. This goal will only be achieved when one begins to plan for it early because income growth tends to plateau in the mid-forties for most people. One needs to save and invest aggressively during the working years. Sources that will generate steady income during retirement also need to be created.
How much corpus will you need?
A person who is currently 30 years old and has a monthly expense of Rs 1 lakh will spend Rs 6.7 lakh each month to maintain a similar lifestyle when he retires at 60. He will need a corpus of Rs 18 crore to meet his expenses over a 30-year retirement span. If he is investing through mutual funds, he will need to run a monthly SIP of Rs 36,800 to generate this corpus, assuming an annualized SIP return of 13.3 percent.
Plan for large capital expenses
Housing is one of the biggest capital expenses. If one plans to stay in the same city that one is residing in and already owns a house, then there is not much planning to do. But if one plans to move to another place away from the city, one needs to plan in advance for purchasing a house there. A roof of your own does provide peace of mind after retirement. Include this in the list of financial goals and start investing for it.
Buy adequate insurance
Buy a pure term plan rather than unit-linked insurance plans (Ulips) as the former can help you get adequate life cover. Those in the 40s should buy a plan that will cover their families for the next 20-30 years. With age the need for life insurance cover reduces. By then the children would have grown up and become financially independent. You would also have built up an adequate corpus. Once you feel confident that no dependant will be affected financially if you are not around, stop paying the premium.
With the rising cost of medical care, adequate health insurance has become essential. More than 50 percent of a person’s lifetime health care costs arise in the last year of his life, and more than 75 percent in the last five years.
Liquidate fixed assets if children live outside India
If your children are settled outside India, they will not have the time to come, manage and maintain properties in this country. Liquidate your fixed assets gradually. Invest in a dollar-denominated or hedged corpus so that the children are eventually able to use the money. Traveling to visit the children and grandchildren is common during retirement. Many people also want to go on vacation with their spouse. Expenses like these have to be planned for and managed through investments made in advance.
Pay off liabilities before 60
Aim to be debt-free by the time you retire. Income tends to be lower during retirement. Having to pay interest will act as a drag on that diminished flow. Senior citizens who own a house and need a regular income flow may explore the option of a reverse mortgage. Many banks, including the State Bank of India and Bank of Baroda, offer this facility.
Write a Will
Diseases like dementia, Alzheimer’s, and transient global amnesia are common mental disorders that come with age. Though they are not fatal, they impair one’s faculties. Hence, prepare a Will well in advance. The courts should not be the ones that decide how your assets should be distributed. If you have kept regular track of your assets and liabilities, writing a Will becomes easy. After writing it and appointing an executor, the dependants and other beneficiaries should be informed of its existence.
Longer life spans are becoming a reality. The sooner you accept it and plan for it, the more tranquil your sunset years will be.
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