Authored by Samir Kapur
GenX ( population in its 40s and 50s) who have moved up the career path in a short span of time and the era that they have grown up in have adopted a good financial habit - of saving and investing aggressively - early in life has now taken them closer towards their retirement goals. (Something that millennials need to learn and adapt).
Many in late 40s ad early 50s are contemplating hanging their boots to pursue their long-cherished dreams. While retiring early with a sizable retirement nest is commendable, but that doesn’t necessarily preclude any shortfalls in the future.
During this Covid time, Think semi-retiring through the element of Gig Economy.
So what is semi-retiring and Gig Economy?
It’s working part-time or intermittently during the time of retirement to cover your daily expenses, while letting your retirement kitty grow.
While Gig economy is a labour market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.
Why should people in Late 40s and mid 50s consider it?
Long life span
With better technology and the advancement of medical science the lifespan, of human beings, has risen consistently. The average lifespan of Indians is expected to go up from current 70 to around 80 years in next 5 years.
Longer lifespan can have an impact retirement calculations. For instance, a drawdown rate of four percent of your retirement nest assumes 25-30 years of retirement life. Any elongation of life span would imply the need for a bigger corpus. Semi-retiring will give you the necessary levers to make midway course corrections and keep going.
Rising medical costs
Medical costs are rising. A critical illness can burn a hole in one’s pocket. Treatment and medication costs range from Rs 5-30 lakh, as of today for such critical illnesses. While medical insurance provides financial indemnity, it also comes with a fine print. For instance, insurers might not cover existing diseases or provide cover for some diseases only after a time lag. In such cases, one needs to be prepared for a worst-case scenario. Retirement calculations will have to factor in this.
Better quality of life
Most of the times, it is not just about money but the need to stay active and engaged with the world. Working – albeit part-time – gives a sense of purpose and challenge which in turn keeps mind and body sharp.
Often, not saving enough leads to a compromise in lifestyle post-retirement. It need not be the case if ones earning even in their retirement years.
How to use gig economy and semi retire
Take a part-time job with your ex-employer, which is perhaps easier. If not, can look towards working in non-profit organizations or other industries where skill sets can be productively put to use.
Alternatively, look for consulting or freelancing jobs in your area of expertise.
Before you semi-retire, make a budget plan. How’s the household budget expected to be after you quit your full-time job? How much do you expect to earn from your consulting work? Will some expenses go up or come down? Look at major spending categories and make necessary adjustments to live within your means.
Test it out
Of course, all this is on paper as yet. Perhaps you underestimated the travel bills in your new location. The best approach, therefore, would be to stay put with your current job, while tracking your actual spends for about six to 12 months before you actually semi-retire.
Importance of equity
The standard retirement strategy of investing in safe and conservative assets might not preserve your wealth. This is because investments into bonds and cash equivalents stand the risk of losing their purchasing power when one withdraws. By investing into growth assets, such as equities, one not only stand a better chance of beating inflation but also in the process increase the chances of one’s retirement nest egg keeping pace with their life span.
So, increase the proportion of equities in their retirement portfolio to the necessary percentage (this will vary depending on their needs and ability).
The best part of being semi-retired is that one’s stay active and socially engaged while enjoying better quality of life. The extra income in turn provides the necessary cushion to let them keep pace with their retirement nest.
Samir Kapur is independent consultant. Views are personal
First Published: IST