Start your retirement planning early

In today’s world where human is racing to make his ends meet and lives in an artificial world of luxuries, it becomes very vital for each individual to not only concentrate on his current inflows and outflows but also plan for a time when the funds inflow rate will be inversely proportional to the outflow.

Keeping in view of importance of retirement planning, one seldom pays much emphasis on it in India. In fact, retirement planning should be the most vital goal of any individual.

While retirement as term sounds very long distant in one’s life; however, the judicial move will be to start planning for it from the day you get your first Pay cheque. It should be a part of your intentional living. Without dwelling deep into numbers and statistics, below are the broad reasons why one should start planning for retirement from an early age.

n To maintain a decent lifestyle so that once you are retired you don’t compromise on quality of life and you continue to live the same way as you do now. In order to have this one has to have a substantial corpus ready at the time of retirement.

n The other important factor is life expectancy. It is seen that life expectancy in India is increasing day by day with the advent of new medical technology. So, it is imperative to have a solid financial cushion which would help them to live without any stress post retirement. The corpus built over these years will also help if a retired individual has to undergo any medical treatment.

With a suitable retirement plan, you don’t become a financial burden on the family and children. If you have a healthy pool of funds available, you can contribute to the family thereby showing that you still care for them.

A major population of our country are government employees and their mindset towards retirement planning is very averse. What one tends to forget and conveniently ignore that post retirement the income one gets is nearly one third of the original one. Keeping the aforementioned pointers with regard to retirement planning, it should be duly considered by government employees; as with the rapidly rising cost of living and to sustain a comfortable lifestyle the pension amount alone won’t suffice. It is indeed way too risky and uncertain to depend on the pension income alone.

How can the retirement corpus be built?

One has to be pragmatic when it comes to saving and investing for your own retirement. The key mantra is to start saving and investing the instance you start earning. It sounds bizarre initially when you think of retirement when you are just starting out in career.

Start small but start early is the intelligent move one needs to make. Put aside a feasible amount which you are comfortable parting with every month and invest that amount periodically through the tool of Systematic Investment Plan of Mutual Fund. The idea is to develop the habit of regular investment and once you are comfortable doing that you can think of investing more. With every increment, one can put aside and invest more money into alternate funds and avenues.

Let’s take an example:

If somebody at the age of 40 plans to invest for retirement at 65 years and the life expectancy is 85 years-so he has just 25 years to earn and 20 years to enjoy life without working. He needs to consider his current monthly expenses.

If the current monthly expense is Rs 50k, inflation rate is 6%, Pre-retirement expected return on investment is 14% and Post retirement expected returns is 8% then:

Monthly expenses at the time of retirement would be -Rs 2.21 Lakh

Lumpsum corpus at retirement would be -Rs 4.66 crore.

To achieve this, the individual has to invest around Rs 17.5k every month and around 15 lakh lumpsum in order to achieve the aforementioned retirement figure.

Now, if somebody who is 30-year-old and other equation remains the same then:

Monthly expenses at the time of retirement would be- Rs 4 lakh

Lumpsum corpus at retirement would be -Rs 8.45 crore

And to achieve this, the 30-year-old individual has to invest around Rs 7.8k and around Rs 6.8 lakh lumpsum. The above example clearly shows that its advantageous to start investing for retirement early. Investing 10 years early makes a huge difference to the entire portfolio.

With regard to retirement planning, there are few financial instruments where one can invest for long term. They include- Stocks, Mutual Funds and Insurance.

Since it is a long-term investment goal you can consider buying good large cap stocks with a strong and quality management and fundamentals as they give high dividends and their value also grows with time. The stocks of these companies should have a good corporate governance, you should also look at consistency of returns before selecting a stock.

Mutual Funds are another vehicle where you can invest lumpsum as well as in a monthly mode. Over the past few years real estate has proven to be a very dynamic investment avenue. Individuals can also invest in commercial real estate.

What one needs to understand is that no one wants to work post retirement. It’s a time to enjoy the fruits of all the hard work one has put for several years. Hence, planning should be taken seriously making one retire in style. Happy Retirement!!

(The writer is Managing Partner at Aaneev Wealth Builders)