Retirement income: Why we need both, an income stream and a corpus

We all need both a corpus and an income stream. This thought kept coming back to me after talking to a friend’s father, who had just sold his ancestral house. He wants to distribute the proceeds to his sons and I was asking him to split it three ways. “We enjoy an amicable relationship, as you always write,” he told me.

The issue is not just about distributing it among heirs. It is also about agency. To have agency is to have control so that your thoughts and behaviour are not beholden to someone else. Our ability to be decisive and true to our beliefs depends on whether we have agency. Money offers unique power and control that enables agency. Therefore, it is important for my friend to keep some money in a simple format, say, bank deposits or mutual funds, so that it is available to use as long as he is alive and is passed on to the children after him.

We have argued in these columns against complicated inheritances that are tough to sell, manage, maintain or transfer. However, we don’t advocate giving away everything, even if the temptation is high, unless one is terminally ill. The question to ask is whether one is comfortable with the loss of agency. Is one happy without power and control over one’s life? Is there no resentment ceding all decisions to someone else and seeking approval? These are important questions to ask.

My elderly aunt recalled how she ran the household with the monthly allocation made by her husband. She did not know how much he earned or saved. The husband was unwilling to share this information and wanted complete control over the bigger financial decisions. She, like many women of her generation, saved from this allowance. She asked for gold and kept it as her corpus. It is intuitive logic to seek a corpus and an income, and understand that financial security requires both.

Not having a steady source of funds to look up to can be crippling. In the earning years, and for the earning members of a household, it is a given. What about the others in the household? Except for dependent minor children, who also demand pocket money, everyone else needs something they can call their own and allocate as they deem fit. This is what I refer to as agency.

I have met many people, especially women and senior citizens, who do not enjoy this income. A cousin has two loving sons, who take care of her. She says she has a credit card and they ask no questions. “Do you spend freely?” I ask. She hesitantly says that she doesn’t. What stops her? She is unable to decide if she is spending less or more. She doesn’t know how much they earn. She worries if the expense will be seen as wasteful. She resents their carefree spending, but is unable to spend like them, even if they do not ask her questions. Not her income, not her comfort.

I have a widowed, senior citizen reader of this column, who lives abroad for six months with his daughter, and the remaining six months by himself in India. He earns a pension that he knows won’t cover his expenses fully. His daughter credits his account happily and willingly from time to time. She asks no questions and bears all the big-ticket expenses. I ask what makes him feel secure about his finances. He says it is his pension. Big or small, it gives him the discretion to spend it on whatever he likes. That is the difference.

Another friend told me that asking her children to give her a fixed sum every month is difficult. They tell her that they will bear whatever expenses she desires. “Are you happy with this arrangement?” I ask. She says that everytime she wants to bring up an expense, even before she can do so, her daughters talk about some of their own current expenses. So she chooses to let go. If giving something occasionally causes discomfort, wouldn’t monthly allowance be tougher?

On the contrary, a monthly allowance will keep it simple and straightforward. The children and parents can agree on the amount and the former can simply credit it like a monthly pension or income. The dependent parent, spouse, sibling or relative is spared the discomfort of asking and enjoys the discretion to spend or save. My mother-in-law bought a whole bunch of magazines to read. It was her favourite activity. She lived with us and was well cared for, but she told me that she wouldn’t buy them all if it weren’t for her monthly allowance. It matters.

Why do we need a corpus? There are curve balls that life throws at us. The corpus or any store of wealth—gold, investments, property, deposits—offers the security that contingencies are provided for. My argument is to keep it accessible and liquid, not simply to have it. A dear friend’s mother fractured her hip unexpectedly. She was relieved that her daughter was not burdened because she had enough funds to take care of hospitalisation and home care thereafter.

Another friend told me that she wanted to go to Masai Mara. “Which one should I liquidate, stocks or mutual funds?” she asked. She was going with a group of friends, all of whom were happily retired and could draw from their corpuses to spend on exotic holidays. As we spoke, she told me that one of their friends was not coming because she had to ask her sons and was hesitant. The woman in question could have spent on her children’s education and upbringing, and liquidated investments for their weddings. However, dangling the sword of gratitude won’t cut it. The children would have their priorities and other uses for money, or could be willing, if she deigned to ask.

Keeping one’s assets accessible and available for one’s use, and later passing these on to the next generation, is the idea. If one is dependent on someone else, defining what is available and can be used is essential. Not out of suspicion and fear, but for agency and freedom.

The Author IS CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING