In a previous post, I had outlined about the 3 decades in retirement and how one could have a simple framework to explain the dynamics of how they will be lived. The first one is the Go-Go decade where you try to fulfil many aspirations you had over the years gone by, the second is the Slow-Go decade where you still do many of your activities but on a significantly reduced scale and the final one is the No-Go decade where you are virtually winding down and kind of waiting for the inevitable end. Of course, this is assuming you are retiring in your 50’s and will need to be expanded in case you retire earlier.
In the Indian context, however, this framework will work quite well as most people do retire in their 50’s and, despite medical advances, few live to be beyond 90. Once you have understood the framework, it will be fairly easy to outline how these decades will go in terms of your life activities and plan out your cash flows for the same. Understand that this is an individual exercise and cannot be reduced to formulae and calculators !!
When I started to look at my situation in the Go-Go decade in terms of my life, this is what I came up with. Some of it is, of course, not completely certain but it seems very likely to me that things are very likely to pan out as I write them here:-
- I will still be actively engaged in professional activities in the first half of the decade but it will taper down over the next part.
- Both my children will be relatively settled in their careers at the start of the decade and are likely to get married within it.
- I am fortunate that my parents are living and in reasonably good health. However, another 10 years will be probably too much to hope for.
- We will definitely shift from Hyderabad to Kolkata in this period, quite possibly in the next year or so. It is possible we will buy an apartment in Kolkata unless we get very good renting option.
- As both Lipi and I love travel and we have time now, this decade is likely to see a lot of it. I estimate 1 trip out of India annually apart from another 3 within the country. Most of these will have the two of us, hopefully there will be some family vacations too.
- Our other lifestyle choices like entertainment, dining out, engaging in our hobbies will probably remain the same as it is now.
- Both Lipi and I will probably engage in some non-commercial activities which are beneficial to the society at large.
What will be the cash flow impact of the above? I looked at my present context and tried to look at all categories of cash outflow at current prices. I am assuming that the first decade starts in 2019 and ends in 2028 – calendar years both, for simplicity. I will estimate cash flows in terms of Retirement Units ( RU ), as I am not very comfortable providing actual numbers. Intelligent readers should have no difficulty in figuring out the Rupee value of each RU !!
Here is how I divided up my cash outflow categories and estimates of amounts:-
- Monthly recurring costs : This head includes everything that happens monthly namely food, groceries, eating out, entertainment, parental support, utility bills, subscriptions and maintenance etc. In the present context we spend about 5000 RU annually here and it will remain the same.
- Accommodation : Presently our rent in Hyderabad is annually at 2500 RU. This gets taken care by the rent we receive from our Chennai apartment. We may buy something in Kolkata if we sell that.
- Travel : in 2017 our spending on this was about 4000 RU. With increased travel I am estimating this to be 5000 RU annually for the first decade.
- Emergency kitty : I am estimating this to be 2500 RU annually.
So in the first decade we are looking at annual cash outflow of 14000 RU. As long as our passive income generates this kind of cash inflow we should be fine. Let us then take a look at the same. My idea here is to generate these amounts from the Debt side as I want my equity investments to grow for the next decade. Of course, dividends are welcome. I am expecting cash inflow from these avenues :-
- Rent from Chennai Apartment – 3000 RU
- Interest from tax free bonds and InvIT – 2500 RU
- Dividends from MF schemes – 2000 RU
- Capital gains from FMP – 5000 RU
- Dividends from stocks – 1500 RU
So with the above inflows I should be able to meet the needs without really having to redeem the principal amounts in most cases. From a financial asset standpoint there are a few things I am not using in this plan. They are as follows:-
- Entire stock and MF portfolio which is 60 % of my net worth.
- PPF interest – currently it will have an annual value of 3500 RU
- POMIS interest – it is only 600 RU and can be used for minor emergencies
- Any active income – difficult to put a value but for the next few years it should be in the range of 10000 RU and more. The plan is to use it for children’s marriage cost.
Based on all of these, I feel quite well covered for the next decade. Yes, we do not know what all can happen but so far so good. What about the next 2 decades? Well, with my equity portfolio growing at a faster pace that inflation, I do not think there is really a need to worry about them.
If you are in retirement or are going to be retired shortly, try to work out your figures based on this post. You will gain a lot of confidence from it, assuming of course you are invested in the right manner.