FIRE considerations – parents and children

What are the most important considerations for you when you are planning to FIRE? For sure, your lifestyle and expected longevity are two most important considerations but there are a few others which are paramount. These relate to your parents and children. Let us address both of these in the current post.

If you are thinking of FIRE today or in the next 2-3 years, you are probably 50 plus now. It is quite possible that your parents are around still and that is a great thing. Fortunately my parents are both living but I know many of my friends who have lost either one or both parents. Given what our parents mean to us, we would all want them to live as long as possible. In several cases, they will be living on their own. Now the issue is this – when they retired 20-30 years back, the corpus they had would have been sufficient to generate enough income but it is woefully inadequate today. My father retired in 1990 and at that time he only had about 10 lacs as a corpus. It seems impossible today, but it was true then. Now those were the days of 12 % interest rates, so 10 lacs would give you an amount of 10000 per month. In 1990 it was still possible to live reasonably well with that amount if you had your own house. However, it was soon to become difficult.

Fortunately, I passed out of IIMC in 1988 and started working so I could contribute to the family finances. Over a period of time, the inflation increased the expenses considerably and the interest rates generally went down. If you look at the situation today, the costs are at a level of 4 lacs annually, even though they live in a fairly simple fashion. Their original 10 lacs is only fetching 75000 Rs today. Thankfully my sister, who is a Doctor in UK and I are able bridge the gap. How did it affect my FIRE considerations?

Well, for my parents the situation was simple. I know that I need to contribute some amount regularly over a long period of time. I therefore just add this amount to my own monthly expenses and look at the total amount. So, If I am contributing 2 lacs and my own expenses are 10 lacs in a year, then I need to plan for 12 lacs.

As far as children go the issues are a little different. If you are doing FIRE at 50, it is possible that your children are still in college. I am saying this as most people will marry around 30 years and have their first child around 32 years or so. Therefore when you FIRE at 50, your child will probably be just starting college. In my case when I FIREd in 2015 start, my daughter was in her third year of Engineering and my son was only in his first year of his 5 year dual degree course. The overall expenses annually for them were in the range of 6 lacs and it was increasing at the rate of 15 %.

I had the following strategies to deal with the situation:-

  • I needed to fund the Graduation expenses of my children and had told them that if they wanted to do an MBA then it would have to be through an Education loan.
  • For the immediate next year, I put some money in FD in their accounts so that they would mature in time for their semester fees.
  • I also started my Consultancy services which resulted in some active income. To the extent possible, I used the money to create new FD’s with the same strategy as before. This meant, I always had enough money kept away for paying the fees for the next 2 semesters.
  • In 2016 when Rinki passed out of BITS and joined XLRI, we decided to take a loan of 12 lacs whereas the 2 year fees were in the range of 23 lacs.
  • Over the next 2 years we actually used only 6 lacs of that loan as I was able to fund the rest of the money through my Active income.
  • Now she has completed XLRI and will be joining her job in June.
  • My son has now completed 4 years and I will have to pay 2 more semesters, each to the tune of 2 lacs or so. As before, this money is arranged for.

So what is the bottom line? When we talk of FIRE, it has to take into account the situation of your parents and children. In all likelihood, you will have to contribute financially to your parents, assuming they are not staying with you. Build this into your monthly expense estimates and deploy your corpus in a manner so that you are getting this amount in a regular manner. For your children, their regular expenses can be catered through your monthly expenses. However, Education expenses in college are a different story altogether and you need to handle it differently.

Take care of both of these and you are ready to FIRE.

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15 thoughts on “FIRE considerations – parents and children

  1. What about Health Mr. Roy?. If one wants to be FIRE, one also should consider a big corpus exclusively dedicated for Health alone excluding the mandatory Health insurance. Early retirement also means two more decades of life. If the passive income does not match the active income one used to get, how should one go about it?. You could write about creating such a big corpus for a couple. After all, we will be aging and not getting any younger.

    Or do you think, increasing the Health cover each year so will be sufficient?.

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    • In the earlier years you will not need anything extra other than regular health insurance. You can keep increasing this later on. In the Indian context retiring before 45 is anyway difficult and you may have to plan for 3 or 4 decades.
      In case of an emergency you will have to liquidate some investment. It does not matter whether you keep it separately. I always believe in a single portfolio and taking money out of it for any purpose, as and when needed.

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      • Thank you for the reply Mr. Roy.

        Have you seen the email I have sent? You said you will check.

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  2. Reality-
    1. By age 40, one’s peak income has been reached. In 15 years one has to achieve FI to sustain another 50 years. People will be forced to take low earning jobs by this age.
    2.Most of middle class parents who retired with indexed pensions are helping with children and grandchildren expenses and not the other way round currently.
    3.Gradually people are shifting to old age homes for long term care – the great way of 3 generations living and caring for each other is on the wane.

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    • Sorry but these are not realities as you say :-
      1. Incomes today will peak much earlier, and one can look at FIRE by 45. If you do it at 55 it is not FIRE. No need to plan for 100 years, you really need to plan for 85 only.
      2. I am talking about parents who retired before 2000. How many have pensions? With inflation being what it is, you will have to be prepared to support your parents.
      3. Agreed on this BUT it will only be required after one is 80, as long as one is in good health.

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      • Sir,
        1. What I meant was by 40 you should be open to transition to low paying work – yes,peak earning is reached before that in private sector – so before 40 corpus should be built,after 40 its more of maintenance than build phase.
        2. Most of middle class parents have indexed pensions. Due to various pay commissions today, these are 40-50k/month or 20-25k for single. At age 80,these pensions get boosted – these people need family support more than monetary support. Sadly, It is highly difficult to support children and parents at the same time if 3 generations are not living together.

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      • Only government workers get pension, how many are in such category? 40 will be not a practical age for FI unless you are working abroad. Most people who do a PG will start working at 24 and will need 20 years to have a logical figure to be FI.

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  3. Hi Raj,

    How should we estimate the amount that will be required for our childrens’ higher education, right from the time that they are in high school:
    – amount required in case they want to pursue under graduation abroad.
    – amount required in case they want to pursue graduation and post graduation in India.
    Please note that no personal opinions expressed by the children as they are still young for this and no compulsion from us parents as the children are free to choose whatever career that interests them.

    The fallback option of availing educational loan is always there but apart from this, will
    appreciate guidance on this as it is a vital part of FIRE planning.

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    • You can get some idea of the Engineering & MBA costs from my post of today.
      For a generic plan, look up some of my older posts where I have explained how you can calculate your Financial Independence number.

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    • Yes, that is definitely within the realms of possibility. It will depend on what lifestyle you are aiming for after 40 and how much surplus you have every month in your working life.

      If you send me this info then I will be happy to give you some ideas as to how you can do it.

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      • i am 27 . my investible surplus is 60 k each month . i have existing savings of 9 lakhs in nps tier 1 which is skewed to maximum extent towards equity and rest towards corporate bonds . FIRE age targetted 41 . Monthly expense 20-25 k . Living with family in small town in punjab .Life is a lot lot cheaper than metros .Expecting similar lifestyle post 41

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      • You will need a corpus of about 3 crores to retire in a completely safe manner. This should be possible in 14 years. Answer the following:-

        1. How much are you putting in NPS every month and how is it going to increase?
        2. After retirement how do you want to spend your time? If travel or any other hobbies with expenses are there then it will have to be accounted for.
        3. Are you very sure about not marrying etc – these things can change and that will affect the whole plan.

        Write to me at rajshekhar_roy@yahoo.co.uk with these answers and I will try to help you.

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      • Marraige is a bandhan . It along with raising kids is a very long term painstaking project .So a big no no .Post retirement i want to deep dive into spirituality and by 50 wish to become a freelance speaker on various aspects of spirituality and related aspects . My nps holdings till date are being poured in by my parents and it has nothing to do with investable surplus as mentioned above .
        regards

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