Often when we think of retirement we think age 60-65 years and perhaps 10-15 years of retirement and a retirement corpus that lasts as long.
You just need to look around you at the great grandparents and the healthy octogenarians to know that this boundary has shifted further thanks to advancements in medical sciences and better know-how around health.
Interestingly, the boundary on retirement age is likely shifting the other direction where many individuals are seeking retirement from active work in the form of financial freedom as early as their 40s.
What happens when the boundary lines move in different directions is that the centre becomes larger. In this case, the centre is the years you spend in retirement.
When this expands and you spend more years than you originally envisaged in this phase of your life, it also means that you will need a larger retirement kitty than you may have planned for.
How can you know how long?
As a first step, you need to understand that the average life expectancy has only increased over the years.
In communities and families where medical facilities are accessible and affordable, it is no longer surprising for the elderly to live beyond 90 years of age.
While you may need someone to physically care for you at that stage of your life, wouldn’t it be great if the financial effort came from the funds you have saved up?
At 90, you are already at least 20-25 years into retirement, even if you choose to start late.
At a minimum, you must look at planning for a retirement corpus that lasts you 25 years.
While this looks daunting as an isolated time frame, consider that in terms of expenses, your needs will probably decline as you grow older.
However, ensuring that you have enough passive income being generated from your retirement corpus to enable covering potential medical expenses should be a priority.
These may include frequent doctor visits, preventive testing, home nurse facilities and so on.
Considering the financial freedom route to retirement?
If looking at moving away from active earning to letting your passive income do the heavy lifting, then you are looking at anywhere between 35-50 years of retirement. That is practically half your life.
How can you make your retirement corpus last through a long retirement?
How long you can make your corpus last is a function of three main things;
- how much you have accumulated towards a retirement kitty
- how this has been invested
- your lifestyle.
Of these three, controlling your lifestyle is perhaps the most important aspect. Human behaviour leans towards expanding lifestyle if income increases, be it passive or active income.
Your retirement kitty as a whole will look like a lot of money, don’t let that fool you into a false sense of affordability. Remember this money has to last for at least two decades.
At retirement, the assumption is that your active income stops. Hence, you are probably going to rely heavily on just income from investments. Bumping up lifestyle at this stage can be detrimental. Sometimes, a case can be made for downgrading lifestyle too in retirement years as income can easily fall short.
Controlling your spending is the most reliable way of making your money last longer post-retirement. A lot of the other work on saving and investing for retirement needs to be done before you retire.
Your retirement corpus can be stretched as far as you have defined your life boundaries. Be conscious that these boundaries are getting stretched and start working on filling up for the centre as early as you can.
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