Baby Boomers: Six tips to plan for your retirement and succession

In the final part of our fortnightly series on money management for different age groups, financial experts talk about how to maximise payouts from income-generating assets

Arun Mamtani, 63, embarked on his investment journey in 2015 and his portfolio includes stocks, bonds, mutual funds, property and fixed deposits.

"Fifty per cent of my investments have no risk, while 50 per cent of my portfolio has low to medium risk. I never dabble in high-risk assets," the chief financial officer of a UAE-based business conglomerate tells The National.

The Indian expat, who invests 40 to 50 per cent of his earnings every month, trades in futures on India's stock market index NIFTY, as well as in shares of blue-chip companies such as Google, Netflix and Amazon.

Arun Mamtani, a Baby Boomer, has a zero-risk approach towards half of his investment portfolio and a low- to medium-risk appetite for the other half of his investments. Photo: Arun Mamtani

Mr Mamtani, who has no imminent retirement plans, has not put money aside in a ring-fenced retirement fund but instead intends to cash out his investments whenever the need arises.

Only 55 per cent of Baby Boomers, those born between 1946 and 1964, have any money saved for retirement and almost half of the 45 per cent who do not have retirement savings did have savings at one time, according to a 2019 survey by the Insured Retirement Institute, which polled 804 Americans aged 56 to 72.

“Boomers are largely unprepared for retirement: unrealistic in their expectations and under-saved. Alarmingly, many of those with savings are either unwilling to engage in actions that can ensure efficient and sustainable income is created from their savings, or unaware of the need to take such action,” the report said.

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I have disposable money in my savings account, so when I sense an opportunity in the market, I immediately buy it

One third of Baby Boomers plan to retire at age 70 or older, or not at all, while 33 per cent of employed Boomers aged between 67 and 72 postponed retirement, the study found.

However, Mr Mamtani is an active trader and has planned for various sources of income after his retirement.

“I have a few properties that generate rental income in Mumbai, India, and fixed deposits,” Mr Mamtani says, adding he follows a do-it-yourself approach to his investments, but also occasionally takes financial advice from the banks he deals with.

“I follow the markets every day. I have disposable money in my savings account, so when I sense an opportunity in the market, I immediately buy it,” Mr Mamtani adds.

Mr Mamtani did not change his investments during the pandemic-induced market volatility, saying he does not play short-term trends and would rather wait to sell until sentiment improves.

“The last time I lost money in the Indian stock market was in 2018 or mid-2019. I normally play safe in share trading,” he says.

We spoke to personal finance experts about their tips to help Baby Boomers plan for their retirement, succession and wealth preservation.

Start succession planning

Protecting the wealth of future generations is essential to ensure that succession planning strategies encompass the family’s investment objectives. It is also important to structure family wealth more broadly from a legal, tax-efficient and regulatory perspective, Rohit Nanani, chief executive and founder of investment and financial advisory Arrow Capital, says.

“Equipping the future generations of family wealth owners and leaders with the right roadmap and clear direction will enable them to continue to secure family assets and address further opportunities for wealth creation,” Mr Nanani adds.

Boomers must also consider taking out life insurance and a will. “Life insurance can be a big saviour for your partner and/or your children; they can use these funds to either generate an income or pay off any liabilities and loans,” Sanjay Tolani, chief executive and managing director of multi-family advisory Goodwill World, says.

Drafting a will or setting up a trust is a must-do to ensure that distribution of your assets proceed in harmony, Mr Tolani says.

“There is a lack of public knowledge in regards to the importance of having effective trusts put in place,” Sophia Bhatti, a partner at financial advisory Hoxton Capital Management, says.

“Simply put, a trust is used to dictate the manner in which assets should be passed onto beneficiaries. It can be used as a means to protect beneficiaries from areas such as inheritance tax and provide ease of access to assets rather than having to go through courts.”

Take out sufficient healthcare coverage

Health should be the number one priority for Baby Boomers. Ensuring the right levels of insurance and protection are in place are vital to ensure a solid financial future in the short and long term, Mr Nanani says.

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Ensure that your financial plan and income strategy have medical costs factored in

“Ensure that your financial plan and income strategy have medical costs factored in. Living the golden years could mean that medical costs could be much higher,” Mr Tolani says.

He advises Baby Boomers to include the costs of insurance premiums, expenses and future medical costs into their retirement budget. They must invest in a good health insurance so that even if they or their family need in-home care or care in a nursing facility due to a chronic illness or injury, insurance can help cover the costs, Mr Tolani says.

Pension management

A pension is one of the biggest assets for Baby Boomers. Therefore, it is imperative to consider not only how well your pension is performing, but also what your next of kin or even your spouse may be entitled to in the event of your passing, Ms Bhatti says.

“Further, is your pension sufficient enough to fund your retirement or is there a shortfall that needs to be addressed?” she says.

Have a retirement plan in place

If Boomers have a lump sum of money, planning for their retirement is one of the most sensible things they can do with it, according to personal finance experts.

“Those with money in hand should consider putting it into annuity schemes, which provide an income. This will ensure that you get regular pay-outs perpetually, even long after you stop working,” Mr Tolani says.

“Moreover, as these annuities start giving you income, they will also ensure that your savings and assets don’t dry up too quickly when you are ready to retire.”

Switch from asset accumulation to income generation

In today’s market of continued volatility, it is crucial for older generations of investors to be more risk-averse and to invest in income-focused assets rather than growth-focused assets, Mr Nanani of Arrow Capital says.

“To minimise risk, it would be more secure to focus on dividend-yielding assets and liquidity as top priorities. By doing so, it allows you to keep a suitably low-risk profile and safeguard yourself against periods of heightened volatility,” he adds.

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Is your pension sufficient enough to fund your retirement or is there a shortfall that needs to be addressed

The time for Baby Boomers to accumulate assets is now behind them and they should start generating income from assets and wealth, Mr Tolani says. “Consider looking at all the different sources of income and how you can better allocate them.”

Some potential sources of income for Baby Boomers to consider include rental income, bonds, equity, fixed deposits, life insurance and retirement plans.

“Bonds provide a guaranteed coupon to the investor and protects the value of money on maturity. However, keep in mind as interest rates change, your income from these investments can get affected,” Mr Tolani says.

Although equity portfolios can be designed to provide a regular income during retirement, they can be risky and payouts could stop or incur losses, he adds.

While life insurance can be illiquid and may not be suitable for instant liquidity in case of an emergency, interest earned on fixed deposits is probably one of the easiest ways to have an income once Baby Boomers retire. However, the interest may not be enough to cover inflation, according to Mr Tolani.

“As you get older, ensure the riskiness of your investment also drops. Your portfolio should be following the ABCD strategy of investment [moving from aggressive to balanced to cautious to defensive],” he says.

Equity release

Boomers are increasingly tapping the wealth tied up in their homes to supplement retirement incomes, according to research. Retired homeowners in the UK above the age of 55 withdrew about £3.4 billion ($4.7bn) in extra income through equity release in 2019, research from equity release specialist Key found.

“Many Baby Boomers will be wondering if they should downsize their homes. Whether you want to release the capital tied up in your home or simply to cut back on maintenance [in the process creating more retirement income and leisure time], factor in all the costs of moving before you make this big decision,” Ms Bhatti says.

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