Planned Agehood - Age with Intent

This is one of the topics we don't dwell on for various reasons - we feel it is too early... will take it as it comes... will think about it when there is enough money or just laugh it off with "arey, boodha ho gaya kya." I picked "Planned Agehood" as the title making up the word "Agehood" not just because it rhymes with "Planned Parenthood", but because it perfectly captures the concept. Move a major aspect of life from being natural/spontaneous into something where we have choice and control. I know for some planning everything takes the fun and spontaneity out of life, but still it is better to consider and then decide what we need. I believe in intent over ignorance, i.e. doing nothing knowingly is better than doing nothing by default or ignorance. Having said that, keep in mind that like many aspects of life, we cannot control the outcomes, we can only control the controllables, thankfully that is often sufficient to make a big difference.

The inspiration for this is of course watching our parent generation growing up, it is easier to see things with clarity and learn when others are going through something. It was also clear that they have learnt a lot from the previous generation and we just have to keep this going. I know a few people who are so passionate about this topic, that they want to write a book. Lucky for you I don't have the patience to write a lot, so this is going to be short and focuses only on the major aspects:
1. Health and capability
2. Responsibility​
3. Resources

As always this is a forum to share, discuss and learn from each other. So please chime in with your thoughts and keep it lively.

1) Health and capability

Let us tackle the big one first. There is no doubt that it is important to take as much care as possible, our parents' generation has taken it a lot more seriously, than, say our grandparents' generation. Minimally they walk, do basic health checkups and take medication when needed, this was not the case with the previous generation. I see the next generation taking this further, many have started going to the gym in the 40s and 50s and are much more aware.

But no matter what we do it is inevitable that the physical and mental capabilities will decline. While it is a continuum, it is helpful to think of it in phases.

Phase 1: Fully capable of independently managing a household
This phase is not very different from adulthood, maybe we have to tone things down a bit. The size, type and location of the house matters, it is obviously much easier to manage a small studio/single bedroom apartment in a well maintained community than say a fancy farmhouse in the middle of nowhere, reachable only by an off roader. Simplifying the household is a good option to prolong this phase, as this is the phase where we retain maximum independence. This can be tough when alone or if there are others are in phase 2 or beyond in our care.

Phase 2: Fully capable of managing oneself, but not able to manage a household
It is very difficult to realise, accept and admit when we reach this phase. No one wants to get out of phase 1, available options may not be acceptable and there is certainly some loss of freedom, so many prefer to prolong phase 1. But a substantial fraction of us will reach this phase and it is better to give some thought to it. Who knows what options will be available to manage this, as that is dependent on the time, place, culture and people, but certainly there will be options. It is important to go through them with an open mind and shortlist a couple of them. At worst you are like a roommate who doesn't do any house work, surely there are plenty of options for such people. Also what is going out of fashion now (like living with your kids) may very well be back in fashion in future. :-)

Phase 3: Starting to need help to manage oneself​
This is where things can get tricky and messy and we often end up here due to circumstances beyond our control. The initial part of this phase may be not so bad, but as it progresses and one needs more help it definitely gets difficult, even when you have near and dear ones trying to give you the best care. In some countries it may be possible to afford unskilled or semi-skilled caretakers, but in others only institutional care maybe available and even that is a challenge in many countries due to their demographics. Many of us will reach a point where we will be vulnerable and yet have to hope, trust and gradually handover control to others. Unfortunately, there are no easy answers here and we just have to accept it.

While we can hope all we can that we don't live to the see the later phases, we have to realise that one plan may not work for all phases and we have to change and adapt as we progress.

2) Responsibility

It is now common wisdom that having full professional responsibility till a specific "retirement day" and then giving it all up is not such a good idea. After all it has always been gradual on the personal side and it makes sense do the same on the professional side. It is natural and easier with some professions like doctors, lawyers, entrepreneurs, self-employed, etc. often their problem is they never think to wind down. But for those with a regular job, it may appear difficult at first, but if you put some thought to it, it is definitely doable. If not with your core profession, then certainly with something adjacent to it. It is good to keep some level of professional activity in Phase 1, but if its stretching into Phase 3, then maybe there is some failure in planning elsewhere!

On the personal side there is no ending, even if there are abrupt drops when we hit some milestones like empty nester, some residual responsibility keeps continuing. There is always some near and dear ones who can use our help. Stick to the sweet spot, where you do enough that it is satisfying, don't overdo till its taxing and stressful. But do offer whatever is possible, making it clear as to which phase you are in, what you can manage and for how long. You might have been in a position to say take good care of your elder siblings, but as you age that may have to be transitioned out. Better to plan and do this gradually than to abruptly realise it one day. The same goes for support to your children and grandkids, discuss and plan. If you are planning to downsize your house, make sure to discuss and be in sync with your children.

Many are capable of taking some responsibility even in Phase 3 and its always a good thing to keep doing something. It is often the case that you are both care giver and care receiver simultaneously, this is not a "it flows in one way" situation. Even in this age of small families, centred around each person is small a web of responsibility spanning across relatives, friends and neighbours. Only thing is to share it gracefully. When someone is in need of care, start with what everyone can do easily, then see who can step up and take care of the rest. It helps if everyone is flexible, its easier for some to give money, for others to give expertise or time and somethings can even be done remotely.

3) Resources

Those of us from India have experienced two kinds of inflation in the last few decades. In addition to the monetary inflation, where the cost of items keep going up (and at a higher rate than developed economies), we have also experienced lifestyle inflation, where we need more and/or better things. Team-BHP folks maybe well aware of the spectrum from walking, cycling, two wheelers, fancy two wheelers, small cars, midsize cars and fancy/luxury cars. We see this in all areas like housing, education, food & beverages, fashion, entertainment, etc.

Maybe the economic-history aware folks will correct me, but I feel this rapid lifestyle inflation is a bit unique. Sure economic development has always been about improving the quality of life, but I am not sure if anything this pervasive across all classes and items has happened in two to three decades. But all good things have to come to an end, for individuals this has to happen when they hit peak income and there are signs of this slowing down in the economy as well. Few wise folks have caught on to this and may have already put the brakes on lifestyle inflation, but others have to realise financial independence is not possible if lifestyle inflation continues.

Once the lifestyle is fixed, we need to accurately estimate the annual expenditure. Expenses recurring annually can be listed easily. Less frequent ones like wedding, vacation, special milestones, medical expense not covered by insurance, etc. can be difficult to estimate, don't forget charity and donations. Make it as exhaustive as possible with some buffer. Another other option is to be prepared to cut some discretionary expenses, to avoid exceeding the planned expenditure.

We then need a mechanism that will provide this amount year after year with inflation compensation. While many options are available, the DIY gold standard is the 4% rule, proposed by William Bengen in 1994 and there maybe a case that it should be 3 to 3.5% for India. The basic concept is you start with a corpus invested in debt and equity (with equity ~40%) and withdraw this fixed percentage, say 3.5%. Then each year you can increase the withdrawal amount by inflation. The simulations show that you will not run out of money 95% of the time. The corpus return is sufficient to meet inflation adjusted withdrawal and compensate corpus for inflation. Below is a handy illustration, that can be scaled up or down as per your needs.

The primary risk is in the initial years, as after 5 to 10 years, the percentage withdrawal will be far less than the first year's withdrawal percentage and chances of failure goes down substantially. If you have some income during the initial years as you ramp down your professional career, then it would give you the flexibility to withdraw less during the initial years to mitigate the risk further. If you have pension, social security or other inflow of funds, you can deduct that and size the corpus for the remaining expenditure. If you have none, it maybe a good idea to plan at least some rental income for diversification. Keep it as simple as possible as anything complicated will get difficult to manage through the phases.

In all probability, there will be a substantial sum left in the corpus afterwards, along with other assets, make sure to plan and codify its distribution in your will.

Finally, if you noticed there was nothing on what to do or what not to do. This is intentional as there really shouldn’t be any drastic change from adulthood, if you want to change something, do it as soon as you realise it, why wait. If it is not good for an adult to sit and watch TV all day or be cooped up in the house or be isolated from people or whatever, then they are not good for any age. Similarly, whatever is good, is good for any age and may at best need some toning down to match capability, but why wait to do it?

TODO
- Legal health declarations (DNR, etc)
- Phases may not be gradual
- Mental health, connectedness, etc
- Lifestyle inflation clarity
- Each area is an ocean