Personal Finance in 50s: Retirement Planning & Money Mistakes to Avoid | CA Rachana Ranade

[00:00:00] Hey folks CA Rachana Ranade here and I welcome you. Oh-ho! We have Mr. Chandu with us after a long time and Chandu has grown old. Chandu looks like as if he's in 50s. Oh God! Chandu, how are you otherwise? All good? Fantastic. He's kind of smiling but if you look at him carefully, he is not really happy. Something is bothering him, isn't it? What's the matter Chandu? What's wrong with you? Hmmmm... He has a bigger concern. He's saying,

[00:00:29] the kids in 20s and 30s, they are saying that we want to retire at 40. What level of clarity do they have? But he's saying that in spite of he being in his 50s, he's not pretty sure whether if he were to retire today, does he have enough money or not? And if he were not to retire today, if he were to retire in his 60s, then does he have enough money or not? I'm sure he might have had a fight with his boss today because he's thinking about retiring today itself. But let's figure out answers to both his questions. Chandu, any other pointers?

[00:01:01] Okay, okay, okay, okay, okay. Oh, so many concerns Chandu has. Let me just sum this up so that you can understand five key points that we are going to discuss today. Number one, like he mentioned that if a person were to retire today, how can he or she check whether does he or she have enough money? Number two, if a person wants to retire at a specific age, say 60, how can that person check whether that much money will be enough or not?

[00:01:25] Or how much money would be required at 60? Number three, very important point he has asked. He said that, Roshna, we have learned insurance, emergency funds, all these points from you. But whatever basic pointers that we have understood, six months emergency fund and all that, do all these remain the same in 30s as well as in 60s? Or are there any changes? Extremely important point. He has also asked me about whether he should rebalance his portfolio or not.

[00:01:50] And last but very important, if he were to do his estate planning, any specific pointers that he should consider or not? Chandu, would you have made me happy by asking such amazing questions? Very good. You can go and sit there. And I hope you have already understood that video is going to be extremely important. So keep on watching the video till then. I hope you are very clear on this, that we are going to talk about how to master your money today, especially if you are in your 50s. We are going to talk about retirement planning.

[00:02:17] But if you want to learn this in an extremely structured way, in absolute detail, then we have two very amazing courses for you all. One is Mastering Money Management and one is Magic of Mutual Funds. To check out these courses, you just have to hit the Stock Market Courses tab. And here you can see Mastering Money Management and Magic of Mutual Funds. Of course, you can click on individual courses and you can go to course contents and figure out what all things are discussed in every course.

[00:02:40] What I want you all to specifically focus on is in the Magic of Mutual Funds course, we have a separate section on how to do retirement planning using mutual funds. Both these courses are extremely important. This is not an optional skill to have. It's a life skill that you must possess. So, if you want to upskill yourself, check out the link in the pinned comment and in the description box below. Now, let's try and do some good financial planning for Mr. Chandu. And we will try and see whether whatever corpus he has today, is that sufficient if he were to retire today?

[00:03:10] Chandu, will you help me with certain numbers? Yes. He has taken permission from his wife first if he is allowed to speak or not. And now he is going to answer the questions. But where do I land first? First, I will go to financial calculators. Then I will go to SWP. Oh, is that Chandu? That's not Chandu. But anyways, I am going to click on systematic withdrawal plan. Okay. Chandu, if I may know, how much is the retirement corpus that you have in place as of now? 75 lakhs. 75 lakhs. Okay. So, I will put 75 lakhs here. You can see it very clearly. It is 75 lakhs. Okay.

[00:03:40] How much is your current monthly withdrawal? 50,000. 50,000. Okay. So, I will put 50,000 here. Okay. Is your majority corpus in equity or in debt? Equity. Equity. So, if it is majority in equity, let us take a 12% expected return. I hope everyone knows that Nifty 50 has given a return of around 12% since inception. So, that's the reason why we are keeping this as 12%. Okay. Chandu, how? Okay. You are planning to retire today. Agreed.

[00:04:07] But how many more years are you expecting in retirement? In short, I am asking him for how many more years he wants to live. I know that's a very odd question to ask. Tunji, you have a thousand of a year. But we will have to have some number put here. So, how many more years do you expect in retirement? 30 years. 30 years. So, Chandu wants to retire from life at 80. So, okay. Let's put 30 years here. And now comes the inflation percentage. We will put this at 6%. Okay. Now, with this number, what do we have to check?

[00:04:36] Whether this 75 lakh will be enough or not. See, understand. 50,000 withdrawal amount today is not going to be the same 5 years later. It will have to get inflated and that is the reason why we have put a 6% inflation to this. Okay. So, now we have to try and understand that after how many years will this corpus be over? Ideally, he should have this corpus for at least 30 years because he plans to live till 80. Right. So, let's see if this corpus will be enough. Oh, oh, oh.

[00:05:04] You can see your corpus lasted 22.2 years. That's not enough. Right. So, there can be two possibilities here. Let's say possibility number one, he reduces his expenses. Okay. He reduces his lifestyle. Chandu, for the time being, I'm going to reduce your lifestyle by randomly 10,000 rupees. Okay. So, let us check 40,000. If that be so, will this amount be? Oh, oh. Kya bat hai? Corpus lasted 30 years. Exactly not. So, there could be two possibilities in such a case.

[00:05:34] Number one, reduce your expenses so that the money that you have, that will be sufficient in the retirement phase. Possibility number two, if you want to maintain your same lifestyle, then can't you have your own side gig? Like people in 20s and 30s, they also do some side hustle jobs, side gigs and all that. People in their 50s and 60s can also do that. Anyways, they are way more talented.

[00:05:57] So, they can either do something like a consultancy, something like a freelance thing or I can tell you some very, I mean, a very interesting kissa that happened last week. I was at my home. I had ordered something from Zepto. And an uncle came to my place to deliver that. He gave me the parcel. He looked at me and he checked it again on his mobile. He looked at that and then he said, thank you so much, ma'am. It was a pleasure serving you. Have a great day. Hope to see you soon.

[00:06:28] And he spoke to me in such fluency and such amazing English. I was like, how is that possible? A delivery guy at Zepto is speaking such fluent English. So, again, this is not to under mean anyone. But I was really surprised. It was a great surprise for me. And that was the time it struck that it was me. I mean, there's a possibility that he was not working because he had to work. Maybe he was just doing it just to pass on some time. Maybe he would want to meet more people.

[00:06:56] He was using the stairs. Maybe he said some exercise, meeting some people, plus some side income. Why not? So, if that be so, if a person wants to choose that as well, why not? You can earn some side income. So, if you feel that your expenses are going a little bit overboard, rather than cutting down the expenses, you can think about increasing your income as well. Okay. Chandu now feels happy. And Chandu now feels that, yes, okay, I've understood what things can be done.

[00:07:23] But this is part one to his question that if he were to retire today, then what? That's what we have answered using the SWP calculator. But if Chandu wants to retire at the age of 60, let us say, then how much money should he have? That is what we are going to answer in the next section of the video. Today, we are focusing on what mistakes that we have to avoid while making financial decisions while we are in our 50s. But you know, there are a lot of people who make the same mistakes, whether they are in their 20s, 30s, 40s, 50s or whatever. What?

[00:07:53] They watch my videos, but they never subscribe to my channel. So, pause this video, subscribe to our channel. It's free. Hit the bell icon and then continue with this video. Now, let's move on with the retirement planning for Mr. Chandu. And for that, again, I'm going to go to financial calculators and here you will be able to see retirement planning calculator. Just click on that. It's a very important calculator that you must check out. But for now, let's do the financial planning, retirement planning for Mr. Chandu. Okay. Whatever pointers I know, I'm going to just key in that quickly.

[00:08:21] But if I need Chandu's help, then I'll ask for the same. Okay. Current age, everyone knows Chandu is 50 years old. Chandu, retirement age, do you want to retire at 60 or have you changed your mind? Pansawan. Pansawan. Marathi channel is not shooting Pansawan. Okay. Anyways. Chandu is still in Marathi channel zone. Okay. 55 is what Chandu intends to say. Chandu's life expectancy is 80. Is that, that's what he had told us. Current monthly expenses that he had told us was 50,000. Correct?

[00:08:50] Inflation, current inflation in India, 6%. If you remember, he had also told us that majority of his money is an equity. And that's the reason why we had kept 12% as the rate of return. But Chandu, after you retire, would you want to keep your money entirely in equity or would you want to shift a little bit to debt as well? I'll shift in debt as well. Okay. So, he wants a balanced one. More in equity, a little bit in debt. In that case, let me just take down the return from 12% to say 10%. Okay.

[00:09:18] Of course, if you feel that you want to keep it at 9%. For you, if you want to put your entire money in debt, you can change this number as per your needs. Currently, I'm doing financial planning for Chandu. For him, I've kept it at 10%. Okay. Till date, I'm sure you might have built some corpus. And of course, he had also told that amount to us. So, 75 lakhs. That is the corpus. Okay. Let's calculate this number now and see whether this number is going to be enough for him. Because please understand, this 75 lakhs is also going to compound till his retirement. Current age is 50.

[00:09:48] He wants to retire at 55. So, 75 lakhs is going to get compounded till 55. Is that money going to be enough? Let's check that. So, what number do we get? Here. This is the important number. Corpus required at retirement is 1 crore 50 lakhs. Roughly. With the existing corpus of 75 lakhs, this increased at 12% CAGR. This will come up to 1 crore 32 lakhs, 17,563. So, there is a small shortfall. 1 crore 50 lakhs is required.

[00:10:18] And 1 crore 32 lakhs is what he has. So, there will be a small shortfall which can be fulfilled using this monthly SIP. Just 16,847. That's nothing, right? But if he does that meticulously over the next five years, his retirement life is sorted. So, if you want to also check that. See, if you remember I told you 1 crore 50 lakhs is required. But we have also given, how have we calculated this? See, this is nothing but the NPV.

[00:10:43] That is a net present value of all the monthly expenses that he is going to require in retirement. So, we have also given the logic here first. If you just want to know about that. So, 1 crore 50 lakh is the corpus at the beginning. The expenditure or withdrawal amount is given here. If you remember, we had taken expenses at 50,000. So, 50,000 multiplied by 12, that was 6 lakh. But when he was 50, at 55, of course, we will have to inflate that number. And that inflated number comes to 8,2935.

[00:11:12] Now, his returns, post-tax returns have also been mentioned here. And the corpus at the end has been mentioned, okay? Now, if you see here, let's see till the age of 80 what happens. And finally, at the age of 80, this much was the corpus. This much are the expenses and whatever remaining is 0. Just in case. Chandu survives and he turns 81. Himalai. Okay, that is the only option available with him.

[00:11:38] Or let's say he has something which he had not accounted for in this 75 lakhs. Maybe some gold ornaments or whatever. Then you'll have to ensure that all these are sold slowly and steadily and he survives. I hope you have understood how can retirement planning be done. One very important point. Be honest and tell me, had you done your retirement planning such meticulously or not? Just tell me yes or no in the comment section. And please go to this retirement calculator. Check the numbers for yourself. And once you do that, if you are comfortable sharing,

[00:12:07] how much is your retirement SIP required or the retirement corpus that is required? If you are comfortable, share that in the comment section. Because I had read this sentence somewhere. Measure what matters. Is retirement number something that really matters to you? Obviously, yes. Then that should be properly measured. And that's why this calculator is extremely important for everyone. Let's move on to a very important point, which is about emergency funds and insurance. Now, you might be like, why is this really important? We know about it.

[00:12:35] Six months is that wait, this is going to be a different parameter. Why? Because when you're in your 20s, 30s, you might be like, okay, even if I lose a job, it's okay. I'll ensure that I get a job right away. I'll try and search. The enthusiasm level is sky high at that time. But now you can imagine a person in his 50s. Ideally, that person will be high up in some organization. Assume that the person is a CFO in some company. And God forbid, but let's say the company fires the top level management and the person loses his or her own job. Okay.

[00:13:05] Now, for a person of that caterer, a person who is serving as a CFO of some company, is it going to be that easy to switch job and join as a CFO in some other company? May not be. It will take some time to, you know, switch jobs. And in such a case, peace of mind is something which is at utmost priority. So rather than you pressurizing yourself that I need to find the job in six months, come what may, it would be better if you have a one year emergency fund or let's say two years emergency fund. So what is the big change?

[00:13:34] Earlier, only six months emergency fund. In your 50s, ideally take it to either one year or up to two years. Okay. This is the first change. Second one is about insurance. Now your health insurance becomes way more important. And why is that? Because let's say you are working in some corporate, as I mentioned, and unfortunately, if the person is fired, then what? In that case, your corporate health insurance benefit is gone. You are on your own now. So ensure that you have your own health insurance as well. Okay. That's an important point.

[00:14:02] And if I'm talking about term insurance, assuming that you are in your 55s, let us say you are 55. In that case, assuming your kids are around, let's say 22, 25, whatever. In that case, do they really require your term insurance cover or not? So what? Why term insurance? That's like an income replacement, right? So let's understand these three questions very clearly. And then you will understand whether term insurance is really required or not. So do you have any income dependent dependence?

[00:14:32] And if your answer is yes. So let's say your kids are around 22, 25 and they are still not earning. They're still doing some higher education. In that case, yes, your income is extremely important. You should have your own term insurance. If you have an existing one, keep it. If you don't have one, buy it. Okay. If there are no income dependent dependence, in that case, no insurance is required. Okay. Because they are earning on your own. Your loss of income is not really going to matter. Okay. Next question is, do you have large liabilities?

[00:15:01] If the answer is yes, ideally you should have an insurance. Keep it, buy it. And if no, then no insurance required. Okay. Now, one more important point comes up here. If you remember, while I was talking about Chandu, I had said that Chandu has a corpus of 75 lakhs. That is the net asset, not the total asset. What do I mean? Assume that Chandu had 85 lakhs of assets and he had 10 lakhs of loan. That is the reason why we had written 75 lakhs. Okay. So yes, exactly. This one, this 75 lakhs.

[00:15:31] This is net of your liabilities. What is available with him? Okay. So that is one important point. Now, going back to asset replacing income. So what do I mean by this? Do you have enough assets that can replace your income also? So much investments that can replace your income. If answer is yes, again, no insurance is required. But if the answer is no, you should have an insurance. Either keep it, whatever existing you have or buy fresh one. I hope both these points are clear. In the next section, we move on to the last two points. Now let's move on to our grand finale discussion.

[00:15:59] It's about rebalancing your portfolio. Of course, emergency fund sorted, insurance is sorted. Now, only two main points remain. Short term goals, long term goals. Well, if I'm talking about short term goals, ideally, if you remember, we have discussed this so many times on our channel, that you should be putting your money primarily in debt and a small chunk in equity. And if it is about long term goals, it should be primarily in equity or 100% in equity, maybe a very small chunk in debt. Okay. But then what changes at 50? Ideally, this composition of assets doesn't change.

[00:16:29] But what is short term and what is long term can change. For example, in our routine scenarios, routine discussions, what do we say is zero to three years is something like short term. Okay. But again, peace of mind is extremely important. If you feel that, oh, what if something goes wrong in the fourth year? See, if you are a person who is not willing to take any risks, especially in your 50s or when you are entering your 60s, in that case, it is better to change the definition of what is short term. Instead of up to three years, you can say up to five years is short term.

[00:16:59] If you feel I want more peace of mind, you can say up to eight years is short term. You want extreme peace of mind, up to 10 years you can say short term. Means what? In the case of Chandu, assuming Chandu is at 60, whatever money Chandu is going to require till the age of 70 should be put primarily in debt. And whatever money Chandu is going to require from the age of 71 to 80, that can be put in equity right now when he's at the age of 60. Okay. So that's how the portfolio could be balanced or rebalanced towards the 50s or early 60s. Right.

[00:17:28] And ultimately, an extremely important point is about succession planning, because if you're talking about creating good amount of wealth, but if you're not passing that on properly, then it means that the last piece of your financial planning remained unsolved. You have to ensure that your will is in place. It is properly updated. Just check on the nominee alignment. Check if all your assets have a proper nominee or not. Wherever there is joint holding, have good clarity on that. If a power of attorney is required, check if you have a proper power of attorney or not.

[00:17:57] Because ultimately, I believe that whatever wealth you create, if that wealth is without clarity, unfortunately, it ends up into litigation. And that is the last point we would want to have, right? So all these things are extremely important. Ensure that if you are in your 50s, you have ticked all these off. If you have any other friends, relatives who are in their 50s, don't forget to share this video with them. If you want to know more about how can you use NPS in your financial planning, don't forget to watch this video. I'll see you in the next one. Till then, take care.

[00:18:26] Jai and bye-bye. You might have come across such advertisements on various social media platforms. Please note, all of these are fraudsters promising unbelievable returns through stock tips. I don't provide any calls or advisory services. I provide only educational content through my social media handles and through my website rachanaranade.com and rachanaranade.in. Thank you.