- Date : 21/01/2016
- Read: 5 mins
The best way to plan your retirement is by understanding that the best time to do it was yesterday, but the next best is today. Let 2017 be the year that you put into motion your long term dream of living a happy, fulfilling life, even after you retire.
Shruti and Vivek were a young couple, both with well-paying jobs in a Pune based IT company. Since they were quite proactive when it came to money matters, they had actively started planning and investing for their financial goals. However, they were finding it tough to prioritize. They were confused whether it was more prudent to plan for retirement- which seemed to be so far away- or for more short term goals like a new car, a vacation and the birth of a child.
Their confusion is understandable, but can have dire consequences.
Since retirement isn’t on the radar for many families, no matter how financially prudent, it’s a silent but serious threat. By the time families realise their folly, the goal suddenly becomes very difficult to achieve and causes panic reactions.
Today, let us look at why it is critical that retirement planning be a part of your financial planning & why you cannot afford for it to be left unplanned.
Why retirement has to be your most high priority financial goal
Following are some of the reasons why retirement planning is of critical importance:
- Breakdown of joint family systems & absence of social security:
The number of nuclear families increased in absolute terms in India, from 135 million in 2001 to 172 million in 2011, albeit at a slower pace than the overall population. The traditional joint family system had been the bedrock of social security in India but is slowly disintegrating as families are turning nuclear. Unlike the developed world, however, India does not have any social security structure, which is why an individual must not depend on anyone but themselves to fund their retirement.
- No third party funding for this goal:
Generally, couples consider their children’s education as their top financial goal, even at the cost of retirement. You must understand however that there are multiple ways to fund a child’s education which include loans, grants, etc. But ask yourself: will any financial institution give you a loan for funding your retirement?
- Impact of inflation (especially medical inflation):
Unlike the western world, India is a growing economy and hence, inflation is bound to remain high (around 6-8%). Further, when you speak of medical inflation, it is said to be anywhere between 12-15%. In such a situation, unless you invest today, in avenues which give a return higher than inflation, you’re not helping yourself as far as retirement planning is concerned.
- Increased life expectancy:
Significant advances in medical care will ensure that life expectancies, particularly in urban areas will rise. As a result of this, the gap between retirement age and life expectancy has increased. So, if you retire from work at say 50 and live till you are 75, you have 25 long years as a retired person. Some back of the envelope calculations will tell you the mindboggling corpus you’ll need at that time to help your funds outlast you, hence, the need for planning for your retirement from today. To know how much you need to save for retirement, use this calculator.
Pointers for effective retirement planning
Below are some pointers to help you plan your retirement in a better way:
- Start early in your retirement planning and benefit from compounding.
- Purchase adequate health insurance for the family, keep increasing sum assured regularly and renew the policy without letting it lapse.
- Invest in simple and easy to understand products like ULIPS to achieve this goal, so you don’t have to be concerned about your money lying stagnant.
- Have a good equity allocation in your portfolio to help you beat inflation and generate a better corpus.
- Follow a certain asset allocation at all times; re-balance the portfolio twice a year to bring it in line with your risk appetite.
- While planning your investments for retirement, also focus on the non financial aspects. Develop a hobby, go around and build a social network etc.
- Invest your time in learning new technologies. The pace of everything going digital is scorching fast and it can prove difficult to manage your investments in your sunset years if you are not in touch with the times.
- If you have started late in planning for your retirement, consider delaying your retirement. There are a number of part time consulting/teaching/freelancing opportunities which you can explore.
- Keep an eye on the concept of assisted living which is slowly gathering pace in India. If you don’t have kids or if they are planning to settle abroad, investing in assisted living can be a good option.
Drawing an analogy from the movie Titanic, retirement is like an iceberg. The nearer you come to it, the more you realise that you shouldn’t have taken it so lightly. And then there is only so much of time left to make it right. So, the best way to plan your retirement is with an understanding that the best time to do it was yesterday, and the next best is today.