Asha and Krishnan were ready to hang up their boots. Asha moulded generations of students by sparking an interest in English literature. Krishnan spent the better part of his career at a renowned MNC. It was time to put their work lives behind and enjoy their golden years.
Krishnan was meticulous and disciplined with money. He ensured that they provided adequately for their children – both of whom were settled abroad. He’d stashed away a robust nest egg and even paid off all their loans. As far as he was concerned, his financial responsibilities were over. Could his retirement savings remain in cruise control, or did he need a plan?
Post-Retirement Planning
Retirement is a key milestone, not the end. It stretches into decades. Meanwhile, your money must sustain outflows, grow, and provide for emerging goals. Even for someone as meticulous as Krishnan, decades can be quite eventful!
Here are 7 reasons retirees need a financial plan:
Change in Risk Tolerance
Once you retire, your active source of income is replaced by income from your assets. Regardless of whether you’re comfortable taking financial risks or not, you simply cannot afford to take as much risk as you did before. When risk moderates so do return expectations. Financial planning restructures your asset allocation to suitable risk levels.
There’s no fixed formula of how much to allocate to fixed deposits, tax-free bonds, mutual funds, shares, and pension schemes. Krishnan and Asha found their best fit working with a financial planner.
Estimated Annual Expenses
Most retirees assume no variations in their expense patterns. However, people spend more when they have the time, health, and energy to do the things they love. Asha planned several travel itineraries. She insisted on visiting their children every year. Krishnan enjoys long games of golf. He often travels to tournaments. When work is out of the picture hobbies take the forefront
Inflation & Household Expenses
Krishnan guessed that their expenses would rise by a few thousand rupees every five years. But, if inflation stabilises at 6%, their lifestyle expenses would double every 12 years!
Through their retirement years, Asha and Krishnan would replace their car, household appliances, and gadgets. These expenses would be infrequent and larger. Planning ensured that they maintain the same standard of living throughout.
Healthcare Costs & Unexpected Expenditures
Krishnan was diabetic. His medicines cost nearly Rs. 10,000 every month. While this was factored into their expenses, healthcare complications were not. In the event of any medical emergency, it was likely that Krishnan would require more care. Their financial planner combed through the fine print of their health insurance policy. She segregated a part of their retirement corpus for medical emergencies and unexpected expenses.
Taxes in Retirement
Krishnan’s post-retirement tax liability caught him by surprise. His pension was taxed like salary. Asha’s savings were in fixed deposits, post office schemes, and government bonds. She learnt that tax was due even on unrealized interest from cumulative deposits!
Going forward they had to choose between two tax regimes. One where they got lower tax rates or one where they had more tax deductions. They were able to weigh the pros and cons of each regime with their financial planner.
Senior Living Community & Longevity
Asha and Krishnan pondered about what would happen when they aged. In the last 25 years, life expectancy has risen by 15%. They could expect to live almost ten years longer than their parents did.
Would managing a house become too hard? Would they need medical assistance? Would they draw comfort from a community? Should they secure a house in a senior living community now? Or would they rather live with their children far away from India?
Even personal questions have financial implications. Through the process of financial planning, Krishnan and Asha evaluated their options. This prepared them for many eventualities. They put off buying a retirement home and decided to revisit this decision later.
Planning for The Long Term
The beauty of life is that we have limited insight into what the future holds. Often, when grandchildren arrive on the scene, new financial aspirations blossom. Asha and Krishnan realize that retirement is a long game. They couldn’t possibly anticipate everything upfront. Instead, they would follow a flexible approach and add goals as they materialised.
Their financial plan was an accessible accurate record of their assets. If they planned their estates now, their life savings would smoothly transit per their wishes!
