PRINCIPLES FOR SECURING
AND GROWING WEALTH FOR POST-RETIREMENT NEEDS
BASIC FACTS
· There
is a basic income and wealth equation
in all our financial lives.
· If
there is a surplus from our incomes on a regular basis, we can use it to build
wealth.
· The
poor, who struggle to meet their basic expenses, fail to build wealth.
· Hence,
they lead fragile financial lives, where a single unexpected expense can push
them towards the brink.
· The
wealthy generate a large and regular surplus from their incomes and are able to
build assets, which cushions their adequate incomes.
· It is
not merely the income one earns, but the wealth created that defines how
comfortable one’s financial life will be.
· Your
biggest advantage can be your accumulated wealth built over years of high
income.
WEALTH CAN BE DIVIDED IN THREE
PORTIONS
· The first portion is preservation, that is, the amount
needed to take care of all the essential expenses over a large number of years
of one’s life, or the household’s needs.
· Some
provide for the next generation too.
· The
wealth that is meant to secure the household’s needs cannot be exposed to
risks.
· The second portion is accumulation.
· If the
entire wealth is conservatively kept to be secure and safe, it will simply
erode over time since inflation is a monster that can increase the needs of the
household dramatically.
· Therefore,
some growth in wealth is desirable so that it appreciates in value over time.
· The third portion is maximization, that is,
the active deployment of wealth with the objective of increasing it.
· It is
obvious that in terms of risk and return, the three portions progressively hold
higher risk and higher return.
· Generally,
you should have provided more than adequately for preservation.
· You
should also have wealth invested in various assets that will serve the
accumulation and maximization objectives.
POST-RETIREMENT
DECISION PRINCIPLES
· The
decisions you take after retirement can impact these portions of wealth
significantly.
· There
would be business propositions based on the assumption that there is enough
wealth to be put into the maximization bucket.
· However,
the risk in this portion can shake the foundations of the other two portions.
· The
risk to your wealth comes from the decisions that may be taken keeping
the current wealth in mind, ignoring the reality that your ability to earn
may have actually peaked.
· You may
not be able to earn the same amount of money in your years of retirement that you
did during your years of active earning.
· Since
the wealth cannot be replenished without a continuous income stream and a
steady accumulation, you should ensure that the first two portions of your
wealth are not compromised to chase the third portion of maximization.
· The
risk to a highly successful professional is the mistaken belief that everything
he attempts will succeed, or the smugness about being able to do tasks never
attempted before.
· Instead,
you should take your business decisions with the same calmness and sensibility
that you displayed in your working years.
· The
wealthy remain affluent as long as the three portions of their wealth are
performing as expected.
· The
salaried class, used to the comfort of a regular income, might not have the
stomach for business to jump from preservation to the maximization mode after
retirement.
· Therefore,
find out how your wealth is apportioned and how you will build and use each.