A reader says, “I am quite confident and optimistic about reaching my target retirement corpus. My biggest fear is managing retirement assets in old age (esp. post 70-75 years). At some point, even we’d need someone’s help to change our adult diaper – how do we keep our corpus last another decade or two? Do you know any wealth management org would offer any similar kind of bucket strategy as a service or any financially prudent way of managing our retirement corpus? I will appreciate if you can write an article about it”.
Congratulations on your graduation! When we first use a retirement planning calculator, it seems like we could never retire. Then, with disciplined investing, time and some luck, we get to the stage where the reader is now.
Once the retirement goal seems achievable, other practical difficulties come to mind. A large corpus is necessary in retirement, but our health and family are even more important. See: Why we must invest in relationships for successful retirement planning.
This illustration may be useful for those unfamiliar with a retirement bucket strategy: How to create retirement buckets for inflation-protected income.
As the reader mentioned, we will begin to lose our mental and physical faculties at some stage. What are our options, then?
A pension should always be a key component of retirement planning. This will ensure “some money” keeps hitting the retiree’s bank account regularly. This can be bolstered by buying additional annuities every decade or so for enhanced pension. See: Use this annuity ladder calculator to plan retirement with multiple pension streams.
The pensions will ensure a constant income stream regardless of the retiree’s health. A pension from the government or an insurer will require annual proof of life (also known as a life certificate). This can be becoming more and more daunting with age. A bond (purchased via RBI Retail Direct) does not require this.
1. A SEBI-registered fee-only advisor is the best choice if we cannot review our investments and manage the retirement buckets but can still implement what a professional recommends. You can work with an advisor from our curated list (the list is 10-plus years old, and 1000+ readers work with them). See: List of Fee-only Financial Planners in India (SEBI RIAs)
However, it may be difficult to accept their advice if you approach them at age 70 or 75 when you have managed the corpus your way for 10-15 years. Therefore, I recommend starting the engagement (involving your spouse) as early as possible.
If you prefer to DIY, you can tell them that I would like to validate my plan, and unless something is seriously wrong, I would like to do things my way. Even if you do not renew the engagement later (although this is recommended), things will be a lot smoother if you seek their help later on.
2. If you become too ill to follow advice, your spouse can contact the advisor and work with them.
3. Even if you have children, asking them to follow the fee-only advisor’s instructions (if you or your spouse can’t) is better. Many children assume they can play around with their parent’s nest egg and mess it up. Also read: Should we be managing our parents’ retirement corpus?
4. What if you are unmarried or lost your spouse early, or both of you are equally unwell or have no children or can’t/won’t involve your children? This is when things get tricky.
Most advisors will not agree to become a power of attorney (POA) to manage the wealth, keeping your best interests in mind. So, it has to be a trusted relative. A POA is better even with children. POA or not, the possibility of misuse or mistake is always there, but that is a risk we have to take when the time comes.
5. Is there a professional who can manage the retirement assets ethically? Yes, there are Chartered Trust and Estate Planners who can do this. This means setting up a trust – in particular, a living trust. We will discuss this in a separate article. Here is a gist. In principle, this works in the following way.
- You and /or your spouse (the settlor) transfer assets(fully/partially) into a trust.
- A trustee will manage the trust, and you and your spouse will be the beneficiaries.
- You will be the sole trustee if you are in good health.
- You can appoint your family members or a chartered trust and estate planner as co-trustees. They will take over when you become incapacitated, but only for the duration of your ill health.
- A separate entity (your lawyer) can be asked to oversee the operation of the trust.
- The trust can continue to operate for your spouse’s benefit after your lifetime, managed by the trustees.
- We will cover other features of a living trust in a separate article.
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Dr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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