Gurdeep Singh Bakshi, 56, a senior sales professional in a multi-national company based in Delhi, plans to work till the age of 65, the retirement age at his company, even though he has had the option of taking voluntary retirement ever since he turned 55. Working longer makes sense for him since he does not have a dedicated corpus for his post-retirement needs. Thankfully, he doesn’t have other financial commitments or liabilities.
Bakshi’s wife Gurdarshan Kaur, 52, is a homemaker and their daughter is pursuing her MBA, which will get completed next year. “Besides my daughter’s marriage expenses, I don’t have any other financial commitments," said Bakshi.
When children are in college or have just started their career, retirement is the next major milestone for most empty-nesters. But, like Bakshi, a lot of them wake up to the requirement only at this stage.
For post-retiral income, Bakshi is highly dependent on rentals from his real estate investments. “I don’t have any specific plan for retirement, but have a couple of real estate investments, including commercial property," said Bakshi.
However, given the lull in the real estate market for the last several years and the current slowdown in the economy, he is now concerned. Bakshi is sceptical about the growth in the capital values of his properties and the amount of rental income he will be able to earn to find his lifestyle needs post retirement.
Most experts believe that having too much real estate is risky. “For real estate, the cut-off is 30-40% of the total portfolio. Given the current scenario, it is better to have just 20-30% in real estate," said Lovaii Navlakhi, managing director and CEO, International Money Matters Pvt. Ltd, a financial planning firm.
Moreover, the real estate cycle turns after a longer period compared to other financial assets, so even if one has to take a hit, it makes sense to liquidate some of the real estate investments and reinvest in financial assets, said Navlakhi. “It is unlikely that real estate will give efficient returns at least in next few years; also rentals will depend on demand and supply. Vacancy risk will always remain," he added.
At the empty-nester stage, there is a change in the expenses pattern: while regular expenses related to children come down, medical expenses tend to increase. Therefore, “plan adequate liquidity, revisit your risk appetite and see if your investments are in line with your risk willingness and risk capacity. Ensure that a sizeable medical insurance is in place. If possible, carve out a separate corpus for medical emergencies as a plan B," said Rohit Shah, founder and CEO, Getting You Rich.
One should have a proper mix of investment products, which can provide regular income for a longer period. “Any extremity is avoidable—over-spending or absolute control on expenditure. A balanced approach of what can be spent for regular expenses, and what for one-off expenses, including holidays and evenings with friends, is warranted," said Navlakhi.
Though you are closer to retirement at this stage, don’t completely neglect equity investment. “One of the most common mistakes is to reduce exposure to growth assets like equity to get into a conservative mode. Risk profile permitting, the growth asset exposure needs to be substantial to combat inflation," said Shah. But at the same time, ensuring adequate liquidity would be helpful, he added.
One thing that works for Bakshi is that he has no pending loans and can now solely focus on creating a corpus for his post-retirement needs.