How to retire early without spoiling family’s dreams

Raghavan, aged 49, and Saraswathi, aged 42, wanted to draft their retirement readiness plan. Raghavan, after a busy corporate life, felt it was time to quit and spend time with family. His daughter Anu (18) had just joined college and son Venkat (16) was in ninth standard.

The accompanying table (Assets) shows his net worth.

His investment assets are ₹5.53 crore. Also, he holds 75 sovereigns of physical gold. Raghavan has been a balanced risk taker over the years. He understands the volatility of equity investments and stayed put over the years to generate reasonable returns from his investment portfolio. He has now exited all his direct equity investments and stuck to mutual funds over the years. He has a sound investment portfolio built over the years, with regular investing.

Family history suggested that the life expectancy number for him and his wife would be 100 years. His family has maintained a modest lifestyle with monthly expense of ₹45,000 per month excluding children’s education expenses.

Goals

Firstly, he needs to maintain one-year expenses as emergency fund in fixed deposits.

Secondly, Anu needs ₹6 lakh towards her college education for the next two years, which is to be maintained as fixed deposits/liquid funds. Also, Anu’s PG needs funding.

Anu’s marriage expenses are estimated to be ₹35 lakh. Anu’s gold gift needs will be met from Raghvan’s current holding of physical gold.

Similar planning for Venkat is also required.

The family needs ₹2.7 crore to manage expenses of ₹50,000 per month for a period of 58 years, till Saraswathi attains 100 years of age.Expected return assumed to be at 8 per cent CAGR.

We suggested they add ₹5,000 per month towards any medical need as additional retirement fund. This may be needed to support any prescription costs, medical helper costs over the years.

It was also suggested that Raghavan keep some corpus towards his property maintenance. His independent house may need reconstruction/renovation as the years pass by.

All his goals are seen in the accompanying table.

Final thoughts

Raghavan is very well positioned to opt for immediate retirement with his modest lifestyle. With the current allocation of 49:51 in equity:debt, he can fund most of his goals without any compromise.

We arrived at a total cost of all his goals to be Rs 6.52 crore. His financial assets are worth Rs 5.53 crore. With long-term equity exposure to goals such as retirement health fund, post retirement vacation fund and property maintenance fund, this corpus is sufficient for him to retire immediately.

Mathematically, for a financial planner, saying ‘yes’ to retirement-ready status to a client is easier.

But there are other behavioural aspects to a peaceful and comfortable retirement. Having worked for more than 25 years with dedication, he was prudent and disciplined while saving for retirement. But he never really bothered to spend time with family or enjoy vacations which have become more important for him now.

This is likely to increase spending in the initial years of his retired life. So, it was advised to look out for regular earning opportunity.

This is basically to protect oneself against unexpected change in financial assumptions such as interest rate, inflation and other surprises such as health needs and lifestyle expenses.

When it comes to retirement readiness, it is always better to exceed the planned corpus by substituting with regular income or allocating additional corpus called ‘retirement fall back fund’.

Hence it was advised that Raghvan take logically sound decisions on spending in the first five years post retirement.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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