MANAGING RETIREMENT

by: Ashit K. Sarkar
3E Palmtree Place, 23 Palmgrove Road,
Bangalore 560 047 (Ph: 080-4112-8153)
E-Mail: [email protected]

While the word 'inevitable' brings to mind the very significant connection between "life" and "death" quite easily, we seldom consider "employment" and "retirement" in a similar vein. General preparedness for the latter event is more often than not neglected when needed to be carried out, or is only considered at the last minute, as one is about to plunge into such a state! In fact, in the case of retirement of the need to carefully plan for the remaining life is far more vital than perhaps for the final exit from this world, and therefore should be an important priority well before retirement date. It is ironic that many managers, who have disciplined themselves to plan meticulously the workplace so successfully, often give little attention in good time to do so for their own well being later! It is certain that post-retirement, for most, there will be a likely drop in standard of living, or if not a drop, certainly a great change in the lifestyle that one may have got used to. Therefore, it is important to be prepared mentally for such reality, based on careful analysis, and make suitable adjustments - both for financial, physical and mental happiness, rather than be sorry after blowing up the savings before long, and also suffer mental agonies of not managing the change as best as one could have with some degree of pre-planning. Then again, businessmen and self-employed persons often have no such 'retirement', and many gradually ease off the work quantum with advancing age or hand over their business activities to other - family or others.

This article is designed to help in examining various aspects related to retirement - mainly for professional managers, so that this inevitable event may be better planned for - just like for achieving any other objective efficiently. Obviously, there can be no set formula, as for each individual in the circumstances vary, as also their own inclination and abilities. However, this write-up may be invoked as a checklist for planning to meet retirement more efficiently by individuals as it suits them best, rather than "meet what comes" on a day to day basis later.

FINANCIAL:

"When a person retires, his regular income stops and he is dependent on his savings accumulated in his earning years to thrive for the rest of the years. For a comfortable living, the savings should be sufficient to take care of the needs of self and the dependents after retirement. Also, the facts that average 60 years old Indian may have another approximately another 20 years of life expectancy. Inflation cuts purchasing power & income dips, but consumption does not change significantly after retirement - that need to be kept in mind when a person plans for his retirement" so is stated by ICICI Prudential's Prudent Investor. Similar topics are often discussed in the media, and some excellent suggestions and good tips to manage one's finances for the future are available.

An excellent analysis summarized by Rajiv Raj "Have a Retirement Plan" states:
"Time flies and so will months and years! Don’t let time surprise you one fine day. It’s never too early to start planning for your retirement funds. You can decide your retirement age and accordingly start making a provision. Focus on creating assets which will generate regular revenue over a period of time. For example, homes for rent or shop space for lease. Apart from that, you can also decide on a lump sum target amount which will fetch you good interest income and start contributing to that chunk".

This very obvious impact is mostly fairly well anticipated, and generally individuals do give this subject some amount of attention, even if not enough, right from early to mid-career stage to build savings, assets and wealth for their future needs from their earnings, inheritances or other assets, after meeting immediate needs during the service period. However, many discover that the provisions made were insufficient to meet the inflationary costs when the time comes or was not planned properly - many just depend on "hope, faith and charity", and just the accumulated due to retirement benefits, and hopefully help from children and others to survive! Some manage despite the limitations, but ideally, everyone needs careful professional or competent help to effectively plan for this vibrant future necessity. Investment management continues to play a very important role also during the retired life when the regular salary income from employment comes to an end. A few tips:

  • "Saving" is a MUST from income from early life - howsoever small it may seem. It requires discipline and control. One has to realise that just cash in hand and the bank are not 'what they may be worth', and that some of the expenses incurred on assets are a saving for the future – as such building assets is a form of saving.
  • Periodically review & chart your total estimated assets, funds, income etc. and the estimated future needs for self and family, including a fair inflation factor. This should start years before retirement, and be revised periodically to become a more accurate reflection of the assets. Fair or rough estimates done after proper review will also be very useful in providing mental peace to many, instead of total future uncertainty, or a false sense of security.
  • The above process requires one to work towards planning and creating a “Retirement Budget” well before one actually retires, as stated earlier, that must be reviewed from time to time. This will need one to understand the assets and income sources that will be available then, and forecasting the likely expenses including inflation, any debt liabilities and balancing it with the changing needs of the future, which is likely to be quite different to the current situation.
  • Ideally, the process of managing finances above often needs professional help and advice even if the amounts are small. Many individuals either go for hunches, or advice from agents who are more concerned with their own commissions, or feel that since the savings are small, they do not need to do anything immediately, or plan to think about it when the accumulations grow. During the 'growth period,, ' they often succumb to temptations for self or family, and discover later that the amounts have shrunk, or become or have remained 'small'! It is important to have self-control and discipline towards building asse and to deal with it professionally and competently.
  • Provide for emergency need possibilities, e.g. consider insurance etc. Remember, in old age, medical costs are likely to be far more than in early life, and their inflation rates can be high. Health costs are one of the most critical elements of a retirement plan. Also how much of insurance do you carry? The Higher cover will reduce uncertain health expenditure but will increase fixed expenditure like Insurance Premiums.
  • Spread your wealth in different forms - Long term & short term savings with liquidity considerations, mutual funds, shares, property, movable & fixed assets etc.
  • Ensure a pragmatic balance between high yield investments and lower risk safer but assured income assets - both in different instruments or types to spread risks, and with proper tax planning. Ensure adequate periodic receipt of funds from investments in keeping with the anticipated outflow. Plan for funds availability to meet regular and periodic expected expenses, and preparedness for the unexpected.
    INVESTMENT PLANNING TIPS:
    * Once you know the annual income that your financial assets must produce for You, on Your retirement, you see if there is an asset allocation strategy that has an acceptable probability of achieving your target income (withdrawal) and savings goals, within the risk limits you set. If there is not, then you must either change your goals, or increase the amount of risk you are willing to take.
    * Select investments that are consistent with the approach you chose
    * Determine the most tax efficient way to hold these investments
    * Finally, you check performance and re-evaluate your plan at appropriate intervals to make sure you're on track to achieve your goals.

  • Mr Sanjay Kumar Singh of Economic Times Bureau has commented in an article about how to "Build the Right Portfolio", especially for early retirees, as below:
    To retire between 45 and 50, your investments must earn a high rate of return. "A 15% return is imperative," says S.G. Raja Sekharan, who teaches Wealth Management at Bengaluru's Christ University and has authored a book, How to get rich and retire early. On the financial side, prepare yourself for early retirement by beginning to save early.

    Earning high returns will only be possible with the right asset allocation in your retirement portfolio. Your asset allocation must take into account your risk appetite and the time left for retirement.

    Vishal Dhawan, Chief Financial Planner at Plan Ahead to Wealth Advisors says any portfolio meant for achieving a target more than 10 years away should be tilted predominantly in favour of equities— 70% or so. "If you are a salaried employee, a large portion of your retirement portfolio will already be in fixed income instruments because of your Employee Provident Fund (EPF) savings, so direct more of your own investments towards equity-based instruments, has" he says.

    Diversified equity funds and ELSS funds are good bets. If you have eight funds in your retirement portfolio, two should be large-cap growth funds (40%), two mid-cap (30%), two international (20%), and two value-oriented funds (10%). On the debt side, you may have EPF, PPF and debt mutual funds. Highly conservative investors may avoid the last option as they do carry the risk of losses in a rising interest rate scenario. Avoid putting most of your retirement money in inflexible instruments. "Since the retirement age itself is no longer fixed, it will not do to have all your money tied up in products that offer liquidity only at a fixed age," says Dhawan.

    Pay heed to after-tax returns while building your retirement portfolio. The NPS corpus is taxed on maturity, while EPF is not. Nonetheless, your post-tax returns from NPS could be higher because 50% of the NPS corpus can be invested in equities, while the EPF invests only in fixed-income instruments.

    A part of your retirement corpus may also be invested in real estate. Avoid investing in apartments now, given their already-high prices, which could translate into low future returns. Consider already-leased commercial property, where the rental return can be as high as 6-7%.

    Plots are another attractive option. Says Raja Sekharan: "Plot prices inevitably appreciate, giving a return as high as 18-20% per annum." He suggests buying a plot on the outskirts of a city, close to a highway. Hold the plot for three years and then sell it. Use the capital appreciation to meet your retirement expenses and reinvest the principal. Hire a lawyer to ensure that the title is clean, or else you could face trouble while trying to sell the property. Second, buy the plot within a builder's complex to minimise the risk of encroachment. If possible, erect a boundary wall and post a guard.

    If planned meticulously, there is no reason why early retirement can't be the leisurely and pleasant experience you have envisaged it to be.

  • While the above may be helpful for most who start or remain in the 'modest' range of wealth, there are others who have accumulated or already have substantial wealth by early or mid-life. Do not assume that their life is easy, as managing wealth has also very numerous problems and we all know of so many who have lost fortunes easily! Further, greed has no boundaries, and often those having millions are desperate for the billions... Here too, balance and care has to be exercised, and while finances seem to pose no problems for them, they have to consider their personal value systems.

    OTHER ACTIONS:

  • Make your WILL, and ensure that Nominations are made in all instruments, and have joint accounts in the Banks, in preference to single accounts, to the extent possible.
  • Ensure listing details of assets, documents, important data and storage location with addresses, and leave directions and instructions for others to deal with your estate easily, rather than having to search and look for such information and documents painstakingly, in the event of your demise. Notes on informal or formal commitments, loans, or deals may also be kept up-to-date for following up.

PSYCHOLOGICAL PREPAREDNESS:

This is most neglected with almost no preparation in a majority of cases, as research has indicated. The impact of the very sudden fall in status (which includes: loss of benefits, prestige, authority, status, perceived image or influence, amongst others) - especially for the more senior position holders. It is seldom fully anticipated, which hits the ego very hard to many, and which often results in variable reactions affecting the retiree (from agitation to apparent indifference), and frequently also directly or indirectly impacts the close family members, resulting in conflicts or depression. This requires serious preparation, counselling or early realisation by the retiree, and an understanding environment from family and friends. Many are unable to adjust to what they consider being a "changed behaviour" from their own grown up adult children and become over sensitive to the loss of authority over them. This changed negative feeling of "uselessness" or "unwanted" perception must not be allowed to predominate the mind, and have to be converted to positive strokes. The individual must be able to convert his/her inherent competencies & interests to satisfying areas of activities or results. It is my very firm belief that the individual's focus should shift to "contentment" - which may be said easily, but requires a lot of internal discipline to achieve even partially through understanding & attitude changes. In extreme situations, professional help and counselling may be necessary to overcome this major problem.

HOME AND FAMILY:

As stated above, the impact of retirement on the above are complex, and often need considerable adjustment. The day long presence of the retiree at home itself often results in new stress or conflicts with the spouse (known as "retired spouse syndrome"). Similarly, at times there may be a period when one of them continues to remain employed, with the other having retired; resulting in the need to redistribute home management tasks equitably, which in itself is quite difficult. Independent living or in joint family residence, result in differing support or interference feelings, that need to be understood and dealt with. Such psychological issues are not easy to overcome and adjust to. There is a need to re-establish family bonds with new understanding and dimensions after retirement, and/or establish bonds with similar interest or age group people. With nuclear families, often due to work needs, and limited support facilities being available from children living away, community homes for aged or retired persons are now getting to be possible alternatives for later or final retired life, which require careful review, planning and decision making for future long term with discussions with the family members - often years in advance, and requiring substantial investments - not easy at all. "It is never too late" attitude is important to make necessary changes, rather than just remaining stuck with, and procrastinating.

PHYSICAL - HEALTH & MEDICAL ISSUES:

With advancing age, the above factors get to be more and more predominant for the retired individual and spouse and continue until the "inevitable" critical day. Health management, therefore, becomes more and more important, and need greater support from professionals, family and friends. Usually, good health during work life makes people unprepared for later health problems, especially as during employment, strong organisational support is generally available, which sadly disappears just when the need becomes greater. Routine periodic medical check-ups, especially after the age of 40, is essential to ensure early attention, rather than a disease to be firmly set. Doctors, surgeons, or dentists no longer remain, rare individuals, as their support gets needed more and more as age progresses. Some rely on gym, yoga or sporting activities for remaining fit. Doctors recommend daily walking for at least half an hour for most people and controlled or light food intake to be very necessary, along with moderation in some habits or practices. Avoidance of sedentary and listless lifestyle is a must. Health issues continue to require ample increasing attention in managing retirement, which must not be ignored. Some retirees interested in sports - like golf, tennis or swimming etc. - find them to be of immense value - both from the health point of view, as well as something they enjoy doing. There is likely to be memory management problems besides other physical ailments gradually with age, but living gracefully should continue to remain an objective, and need to be pursued as best as it is feasible.

MANAGING LEISURE - ACTIVITIES & INTERESTS:

This critical area can be the ideal management win-win solution of converting the negative factors into opportunities for the ultimate well-being after retirement. There is very strong need for planning for alternative ways to remain active - both mentally and physically after retirement - and to learn to lead a relaxed but interesting fulfilling life. Some may manage with part-time or light duties for a period gradually before the complete withdrawal from professional life, or periodic assignment as Advisors or Consultants. What is important is that one should try to take on what interests one most, if feasible. Time to dwell on hobbies, increased family interaction and in such functions, travel, writing, music, games & sports or in various other interests including participating in philanthropic voluntary or honorary work, or in philosophic or religious groups or professional bodies can be a rewarding way to spend retired life, which suddenly opens the door for time availability for taking up many unfulfilled dreams!. It requires a fair degree of discipline for converting this likely unplanned life without any activities or interests and just wasting away the life doing nothing, into a meaningful and interesting life! Not doing so is very damaging to the body, as well as, for the mind. While the physical activity level is sure to come down, but life must not be totally wasted as long as satisfaction from achievements remains a possibility.

GENERAL:

While the above article is focused on to the traditional employees, who mostly retire around the age of 58 - 60, we now do have many IT employees, who cease their employment much earlier, often feeling burnt out due to high pressure jobs, and usually after a much larger wealth accumulation despite the shorter service life. They often need different considerations, even if many of the above factors and principles apply. Physical health and financial issues may be mostly satisfactory - they being younger and being generally well off, but same principles apply to them too. Many become entrepreneurs and start their own companies, therefore continue to remain much stressed and in very uncertain and challenging scenario - but, of their own choosing. Some decide to relax and lead an easy going comfortable life - which despite having money, is extremely difficult! The past work stresses, indifferent working hours, high living and frequent international travel in differing time zones, varying organization standards and conflicts, transfers or many job changes, job anxiety etc. often extend and affect severely to them and their families, and many find the balancing of life and financial success being far from being simple, and needing professional help. Stress management becomes even more important after retirement! Similarly, entrepreneurs or business people hardly have any specific retirement or age, and their needs may be different, but many of the stated suggestions could be valid for them too.

With the work pressures and stresses increasing generally in all spheres, it is necessary that the employing organizations and professional bodies devote some attention to provide psychological and counseling help to the employees on many of the stated issues in this analysis, and particularly to the future retiring groups in good time to help them prepare better to "MANAGE RETIREMENT", which only a few do so as a part of their organization philosophy.

FOOTNOTE:
Subject: Importance of Having an Occupation after Retirement ...

Harold Schlumberg is such a person:

THIS IS QUOTED FROM HAROLD:

I've often been asked, 'What do you do now that you're retired?'
Well...I'm fortunate to have a chemical engineering background and one of the things I enjoy most is converting beer, wine and whisky into urine. It's rewarding, uplifting, satisfying and fulfilling. I do it every day and I really enjoy it."

--Harold should be an inspiration to us all!!!!!!