Team-BHP (https://www.team-bhp.com/forum/)

-   Shifting gears (https://www.team-bhp.com/forum/shifting-gears/)

-   -   The Retirement Planning Thread (https://www.team-bhp.com/forum/shifting-gears/200514-retirement-planning-thread-19.html)

has anyone rethought of the corpus/ investment strategy due to Covid ?
If so, can you share the changed strategy

Very true!

I've seen multiple instances in my social circle, especially with women, even well-educated ones making bad choices because of family pressure. After a certain age, the pressure to get married increases and the pool of eligible partners shrinks. So, they get hitched to less than suitable partners, brought by "well-meaning" relatives, just because they are from the same community or religion and just to shut the family up. Since society again dictates that they are already "too old", they have kids pronto. By that time the parents have also reached an age where they become dependent on their families. At this stage if the husband turns out to be a loser without a job, or someone who squanders money on business ventures doomed from the start, the whole family drops a level down the socioeconomic scale. Far better in such cases to remain sensibly single, get a higher degree or focus on the career and secure one's financial security.

Marriage is amazing, am not advising against it by any means. But I've seen that the definition of the "right person" means someone who has matching life goals, is financially sensible and wants to raise their standard of life rather than someone who is from the same background or religion or likes the same movies!

Wow! Petrol heads can turn any discussion into a car discussion!rl:

Reading through the thread, and then trying to fit myself, I see that retirement planning is very very tricky. There are a lot of unforeseen expenses which can’t be estimated like medical expenses. Unfortunately if one is affected by a major disease or illness, it can wipe out entire life savings in a matter of days. Again, if any calamity strikes like a fire, tsunami or an earthquake, one’s shelter can be destroyed in seconds. And these are not six sigma events that I’m talking about.

Plus there’s a risk of living too long as well. Ironically, if one is working, they are afraid of living too short but after retirement, there is a risk of living too long and your retirement corpus may not be able to fund that prolonged life.

Though I’ve figured out a sum that I need when I retire but I often get puzzled by these questions. I think if I even reach that amount before my retirement age, I will continue working albeit taking much lesser pressure at work because of the cushion. And that will be some financial independence in my opinion.

Given how many once-in-a-lifetime events seem to have either occured recently, or lining up for the near future, my retirement planning focus is shifting to establishing and securing 'what's the bare minimum acceptable lifestyle I can make do with', before I think of any bells and whistles.

The whole planning thing is dependent on sustained earning ability, which the last year or two has demonstrated can be crippled in short order and upend the best laid plans, so a firm minimum baseline is critical. A worst-case-scenario, if you will. Not literally of course, because we all eventually die in that one:).

Hi Folks

Am in my late forties thinking about retirement before 50. Most of my assets are in stocks and MFs. My asset split is kind of this:

Equity: 55%
Real Estate: 25%
PF, etc: 15%
Gold: 5%

Now the problem is this. My equity portfolio is high because it has grown substantially recently while the others are kind of stagnated. And because of the growth in equity, I have enough to retire and some extra too. But if I retire and then the markets tank, most of my portfolio will be wiped out. So what is the smart thing to do going into retirement?

1) Sell off the entire equity portfolio and shift to a safe instrument like FD?
2) Keep them as equity investments with the assumption that even if it may go down, it will not erode the corpus completely.
3) Sell enough to create the corpus (which I keep in FD) while keeping the rest invested in equity.

After every upward trend in the stock market, I think that the peak has reached and it will tank soon. But although some times it tanks a bit, it appreciates twice as much very soon. How long is this going to last? Is it real or just a bubble which will burst sooner or later?

First decide on an allocation % for each 'financial' asset. For eg: 66% Equity & 33% debt (FDs/PPFs/debt MFs). Ignore real estate & Gold as these are physical assets and it is not practical to assign a value to it everyday. Because of rise & fall of equity portfolio, your 66/33 equity/debt ratio keeps changing everyday. Now decide on a time period (1 month/3 months/6 months/1 year) after which you will rebalance your portfolio to get back to 66/33 levels.

In your case, your current equity allocation is 78% and debt allocation is 22%. So sell enough stocks/equity MFs and move the proceeds to FDs/Debt MFs, such that your equity allocation gets down from 78% to 66%. If there is a big correction, your equity allocation will fall below 66%. Then sell debt MFs/FDs and buy stocks.

So decide on a ratio and stick to it all through your life. Do a Google search for these keywords to learn more:

ASSET ALLOCATION
PORTFOLIO REBALANCING

When we stick to a desired equity/debt ratio, we don't need to search for answers to such questions. You will sell when stocks are zooming up and buy when stocks are crashing.

Have nothing useful to add really, I'm a mostly silent reader on this thread and learning. But just had to log in to say congrats, this is the dream a lot of us are trying to get to and you've done it. Great going!

The thing with Equity/MF investment is that unless you exit, there is no real money made.

Since you already have the retirement corpus ready, exit to the tune of that corpus and put them in some other safer instrument. Investing in "safe" real estate is another option since you'll end up paying hefty taxes for FD interests. And what I mean by safe is real estate where you can be hands-on, nothing too experimental. Ideally, a plot of land near where you live since land will always appreciate over time.

Don't divest fully, keep something in the Equity market so that you still have something earning there. But mid-forties and 55% on Equity is over-indexed in terms of risk.

Not an expert, but personally, I would go with a variation of option 3. Move the corpus to a debt fund and the remaining in Equity as a booster.
My understanding is that debt funds are more tax efficient compared to bank FDs.

Congratulations on the achievement of this very significant milestone.

I have following points to add:

- Since your strategy on equity has been working and giving you the desired returns, please trust the same and have some percentage invested there.

- Since you are below 50, I assume you have kid/s still in school/college so you need to keep aside the corpus for that purpose preferably in safer non-equity options.

- Retirement planning is the most important step of financing planning which involves a very high sum of money, it may be wiser to take help from the qualified fee-only financial planners to get your portfolio sorted.

Thanks everyone who chipped in with ideas.

What is a healthy equity/debt ratio pre/post retirement? I understand that post retirement, one has to be more conservative. So does a 75-25 pre retirement and 50-50 post retirement ratio sound good?
I had been planning for this for the last 5 years, but the goal was not in sight until Covid came and all my IT-heavy equity portfolio boomed. Anyway, my target was modest. I want to get out of this industry as, I have lost the drive and my faculties are slowing down.
Real estate is what am most scared of. And liquidity is very low. I had been wanting to sell off the apartment but no buyers in sight. Also I have enough ancestral land (which I have not factored in the retirement calculations, and simply pass on).
That is sound advice, except that I am now confused whether having a fixed amount in debt funds or a fixed percentage like smartcat said above a better way. I never really understood the need of portfolio rebalancing until he explained it.
I know am only getting started. Before I get into retirement, I have to get my wife on board. I had been dropping hints, but am not sure she took them seriously. Also, the family depends on my income alone, so the idea of not having a monthly paycheck is going to be scary. And the in-laws. And the "well wishers".

I have kids in school, so I have to plan for their education and keep that aside.

And finally, need to decide how to spend time. I will have my hands full for some time with the kids, but after that cannot rely on Netflix alone.

Standard formula is that your age should be the debt holding %. Meaning:

- If you are 48 years old, debt should be 48% and equity should be 52%
- When you are 60 years old, debt should be 60% and equity should be 40%

and so on.

In the case of OP, rebalancing now by selling equity makes sense since the equity market is up at this moment. But what about someone who needs to rebalance the other way round? Is this the right time to switch to equity or wait for a correction?

If anybody is facing a dilemma like this, it is best to take the middle ground. That is, move from debt to equity slowly over time (3 months/6 months etc). That way, you won't be feeling bad if market crashes or shoots up from here.

Well, you have hit the nail on the head with these three questions -

Before jumping onto the 'retired life' bandwagon, it is not sufficient if you concentrate only the 'financial security + cash flow' part. If there is an asset, there has to be a liability! So,

1. Do the math and figure out how much you spend each month (average of last couple of years should be good indicator?). Do you plan to cut down on any of your expenses? Then, whether the income you expect will meet these expenses. Inflation is a silent killer.

2. What are your commitments - not just the EMI, childrens' studies and/or marriage, aged parents etc. Do you plan carry the debt or repay (to avoid paying interest)? Is any fund set aside for this or what will be the impact if you withdraw from your corpus and the resultant income?

3. What other areas of expertise do you have? Unlike a regular (work) routine, doing same thing every day will become monotonous and the lack of any goal can induce laziness. Having financial freedom will only add to this, unless you impose some kind of routine / discipline on yourself to spend time. Adapting to 'retired life' will require new set of skills, I guess!:D