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.