Think Retirement is a joint initiative between Tata MF and Wealth Forum, where we discuss diverse aspects of one of the most critical responsibilities of a financial advisor towards his investors: retirement planning. Our endeavour in Think Retirement is to provide advisors with insights and perspectives that can help them understand the various dimensions of retirement better and thus help clients prepare and execute effective retirement plans that enable them to live their golden years with dignity and financial security.

In the inaugural article within the "Understanding Retirement" section, we explore a rapidly emerging dimension of retirement planning. For many successful executives, retirement does not mean hanging up their boots at 60 and living off past savings and pensions. There is an intermediate stage that they yearn for - called the financial freedom stage - which advisors will do well to recognize, understand and help these clients plan for.

What was wrong with Neeraj's approach?

Imagine this scenario : a young advisor Neeraj is with a prospective client - Mr. Jain - and is trying to impress him with his financial planning approach. Mr. Jain is a successful, 40 year old senior executive in a large telecom company - a very busy man in a high pressure job, but one that also pays him well. Neeraj talks about how he can help prepare and execute a retirement plan for him that will ensure that he lives out his retirement years without sacrificing on his current standard of living. He talks about how life expectancy has increased and how retirees must now plan for at least 25 years of a retired life and how it is therefore critical for his savings to be invested in a manner that protects his purchasing power through a long retired life. He talks about the need for retirees to live their golden years in dignity and with a sense of financial security. He talks about soaring health costs and the need to adequately cover oneself with appropriate health insurance. As he keeps talking, and in his opinion, doing a good job of helping the prospect understand how comprehensive a solution he can offer him, inexplicably, Neeraj sees Mr. Jain's interest waning completely, until he abruptly ends the meeting. Neeraj goes back to his office wondering what he did wrong.

Retirement vs Financial Freedom

The next week another advisor - Dhiraj - approaches Mr. Jain on a relatively relaxed Saturday afternoon. He doesn't talk about his financial planning solutions. He gets talking about the telecom industry. Mr. Jain talks about how fiercely competitive the telecom world is, about how it's a 24X7 pressure cooker environment. Dhiraj asks Mr. Jain, "Do you see yourself in this kind of an industry for the next 20 years, until your company retires you at 60, Mr. Jain?"

That question turns the entire conversation to a different angle. Mr. Jain takes a deep breath, thinks for a moment and says quietly, "No." A simple but firm reply. Dhiraj probes, "What then, Mr. Jain, do you see yourself doing?". Mr. Jain now stretches back on his sofa, pauses for a moment and then says quietly, "You know Dhiraj, whenever I see Chetan Bhagat on the TV, when I read his books, when I see his movies, I keep thinking - that's what I really want to be. I am an author at heart, Dhiraj. I know deep down that I have what it takes to become a good writer, to write best sellers. Do you know that I was a gold medallist in English literature at college?" Dhiraj continues to probe gently, "Why Mr. Jain, did you not become a writer? Why did you join the telecom business?". Mr. Jain replies quickly, "Writing is high risk, Dhiraj. For every Chetan Bhagat and Amish Tripathi, there are hundreds who don't make it. And, these guys Chetan and Amish, like me, did their MBAs, went into the corporate world, and then chucked it when the calling was too strong. I did my MBA from IIM-A, got into Levers, worked my way up and then came into this industry in a marketing role when the industry started booming, 12 years ago." Dhiraj continues to gently prise open Mr. Jain's dreams and desires, "And when, Mr. Jain, will the calling get strong enough for you, like it did for Chetan Bhagat and Amish Tripathi? When will the telecom marketing guru become India's newest best selling fiction author?"

Mr. Jain looks Dhiraj in the eyes and says calmly, but with a new found resolve, "Dhiraj, when I know I can chuck my job and still pay all my bills, I'll quit and begin writing my first book. I've got the story outline already penned - but I just don't get the time to begin writing the book." Dhiraj now leans forward and suggests, "Mr. Jain, why don't we work on a Financial Freedom plan for you? Why don't we run some numbers and see how quickly you can actually move out of your job and start living your dream?" Mr. Jain is now excited, and the meeting is giving him a wonderful sense of direction. "Yes, that's a great idea. Financial freedom - that's a great idea. That's actually what I am after. And you know, once I am financially free, its not as if I won't earn - with my experience in the telecom sector, I know I can swing a few consulting assignments easily, even as my first book takes shape. But, what I really want to know is how soon I can afford to begin my new innings, after having secured and provided for my kids, my family and all of that."

Dhiraj knows he's got himself a client. Suppressing his own rising excitement, he says calmly, "Mr. Jain, we can get started right away. Tomorrow is Sunday - if you'd like, I can come over to your home and we can begin working on your Financial Freedom plan straight away." Mr. Jain responds quickly, "Yes, Dhiraj, that would be great. Lets meet at 11 am tomorrow - you can have lunch with us, that will give us enough time to get this going". "Sure, Mr. Jain", says an excited Dhiraj. As Dhiraj was preparing to leave, Mr, Jain says, "You know Dhiraj, last week an advisor came to me and bored me to death. I had to almost throw him out of my office". "What did he say" asked Dhiraj. "He kept going on and on about retirement at 60, about how the next 20 years at this company will enable me to save enough to last me and my wife till I am 90, provided I invest judiciously, he talked about medical costs at old age, and a whole lot of such stuff. You didn't talk a word about retirement - you talked about financial freedom. That's what I really want now. Financial freedom."

Planning for Financial Freedom

Increasingly, financial planners are coming across more cases that resemble Mr. Jain's in our little story above. This poses a challenge to traditional retirement planning. Traditional retirement planning assumes continuation of income from the job till age 60 and stoppage of income thereafter. The only income that one typically assumes is pension and returns from the retirement corpus. As we have seen in the fictional story of Mr. Jain, a traditional retirement plan is not what such investors really need. They need a plan for a phase in life that comes before actual retirement - a phase called Financial Freedom. This is a phase where they will still be very active - maybe in a different vocation or profession. This is a phase where they wish to be active pursuing a vocation they always wanted (and not just a hobby) - this is a phase where they dream of achieving success in an entirely different profession, something they are deeply passionate about. But, what keeps them from living this dream is a realization that they will give up their steady, high paying jobs for a financially risky new innings of their lives. If you as an advisor can help them with a Financial Freedom plan that gives them the comfort to take the plunge at an appropriate time, you have probably done much more to make your clients truly happy than any amount of incremental alpha in their portfolio possibly can.

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