Duringa recent discussion with one of the clients, I was asked if she were to retire today, would the accumulated corpus be sufficient? If so, for how long and at what monthly withdrawal rate? Having run through her numbers, I immediately quipped in affirmative that she’s achieved the financial freedom. But then I asked her if she had thought of plans for life beyond work? Her expression shifted from triumph to contemplation.
Increasingly, I find many are ill-prepared for this part. In our relentless pursuit of financial timelines, we often forget to plan for the race that comes after. Many are vexed with the current grind, want to quit job or work but aren’t sure what to do with the abundant time in retirement despite having a generous corpus. The immediate reflexive responses are associated with travel, exploring new places, waking up to wavy beaches or mistic hills. While these are wonderful and well-deserved rewards, they’re not sustainable strategy for a retirement that lasts more time than the working life. A permanent vacation, turns out, to be more like an unemployment if it lacks structure and purpose.
‘Will the corpus last’ is a foundational financial question could be well addressed through rigorous analysis and disciplined lifestyle. The total investible networth i.e., the corpus defines this, the larger the better. However, there’re certain risks like the sequence return risks, withdrawal rates, longevity that could derail, if not considered properly. A well-structured portfolio with enough buffers could certainly enhance and last beyond the lifetime.
The danger of timing of withdrawals from a retirement account can negatively impact an investor’s overall return, otherwise called sequence of return risk. Withdrawals during a bear phase of the market could turn costly than the same withdrawals in a bull market. This is because, one must redeem higher units for the same quantum (due to depressed prices). While an additional buffer helps, the problem could be best addressed by separating the initial withdrawals from the overall portfolio or corpus.
So, financial freedom isn’t the end goal but a launch pad to the new journey. It should buy the freedom to explore, contribute, connect and grow in many ways that weren’t possible earlier due to lack of time. While one is building retirement corpus, I urge to build their vision, simultaneously. Don’t just plan to retire from something but to retire to something. The most rewarding retirement isn’t one long vacation but it’s the next exciting, purposeful and unique chapter of life.
(The author is a partner with “Wealocity Analytics”, a SEBI registered Research Analyst firm and could be reached at [email protected])