How Many Times You Will Retire?

The question may look strange as you might be thinking that everyone retires only once. But I have seen some people retiring and then joining again as they did not have enough money or had done improper planning. Some people would have also experienced temporary retirement due to job loss and the period could have been anywhere between a month to years. Retirement is just like a long vacation–the only difference between a formal retirement and informal retirement is the expected change and sudden change in income and lifestyle. 

Neeraj Chauhan
The Financial Mall

Earlier, retirement used to happen at the age of 60, 62 or 65 years, depending on where one worked. But the new generation is so stressed and exhausted that they look for retirement anywhere between 50 to 60 years due to the high pressure jobs, which means lesser working years and more retirement years. Someone rightly said, "When a man retires, his wife gets twice the husband, but only half the income". 

 There are also the go-go years. These are years right after retirement that are spent traveling and enjoying many of life's treats that were set aside or denied because of responsibilities and guilt. These years may last as long as the money does, but eventually the realities of old age become apparent, and people slow down. So does their spending. The slow-go years may last quite a while, depending on healthcare and genetics. The last stage of retirement is the no-go years. If you have had elderly parents, you know they don't spend much during these years–health, housing and food are just about the extent of spend.

"A safe savings rate is the amount required, based on a conservative investment strategy of reaching your number. A safe withdrawal rate is the amount you can take out and have a reasonable chance of making your income last for your entire life."

Everyone knows that in order to have a pleasant retirement, it is necessary to prepare financially. In India, we don't have social security schemes, so the majority of the financial burden will fall on the individual. This is an important part of retirement since you will no longer be working. Here are just a few of the most thought-provoking questions about retirement and financial preparation. 

Here are three questions each of us must be able to answer long before we retire.

Do you know your number? 

Do you know how much capital you would need when you reach retirement to sustain your standard of living for the rest of your life? It is an important exercise to have financial freedom and to maintain the same standard of living postretirement, without depending on children and compromising on the self-esteem. 

There are several factors that can and will affect this glide path. Besides longevity and inflation, there are portfolio returns, including investment risk and the whole area of healthcare,

including long-term care. These are all major challenges to a successful retirement outcome. 

Another major factor is life expectancy. We know people are living longer. This does not mean better, but it does mean medicine is able to stretch out our lives 10 to 15 years longer than it did decades in the past. 

Do you know how much you have to save to reach your number? 

Question two is about the savings rate. Once you determine your number, you need to calculate how much needs to be saved every month. This is simple math, but it depends on your age and instrument of your investment. 

Does your investment process have a high probability of reaching your goal? 

Do you have a process that can provide an optimum return and withstand the emotional roller-coaster experience? You must have an investment process that is sustainable through the emotional roller-coaster of markets. Markets go up, and markets go down, but how you handle these emotions determines investment success.

Accumulation takes place during our working years, while de-accumulation occurs during the last quarter of your life. Both require an understanding of our safe rate. What does safe rate mean? The safe rate for savings is different than the safe rate for spending. These rates must be managed properly to assure a comfortable and sustainable income during the last years of our lives. A safe savings rate is the amount required, based on a conservative investment strategy of reaching your number. A safe withdrawal rate is the amount you can take out and have a reasonable chance of making your income last for your entire life. 

These three questions raise several important issues and concerns. Coupled with market uncertainty, inflation, and longevity, investors are coping with sustainability of income and financial flexibility. However, their biggest concern is risk and loss.

We wish that every Indian should live a respectable and independent retired life, for which one needs to think and act prudently from the early stage of life. The best time to start thinking about your retirement is before the boss does. Last, but not the least, never dip into your retirement corpus in emotions to fund the goals of children. Retirement funding should not be compromised for anything, so that you retire only once and retire happily.