Why Retirement Planning Should Be On Your Priority List By Shyam Kumar Agarwal, Mutual Fund Distributor

People often refer to retirement years as golden years as they can enjoy life without having to worry about going to office, meeting deadlines, preparing presentations etc. But apart from retiring from work, monthly salary and job-related perks also come to a halt forever. Ideally everyone wants to secure their future and enjoy this twilight phase while being able to maintain their lifestyle. A good retirement plan not only ensures an additional source of income but also helps in dealing with medical emergencies and fulfilling life aspirations while being financially independent. Yet, retirement planning is one of the most ignored financial goals in most Indian households since it appears years away. Many people become concerned about losing their financial independence when they approach their retirement date and discover they have not saved enough for their retirement.  

Why Plan for Retirement? 

The average life expectancy is increasing so retirement can last a lot longer that you think. After retirement, you will no longer be covered by employer-sponsored health insurance, you will need to pay for your own healthcare (or get it through a private insurer). Healthcare costs are pivotal to understanding the importance of retirement planning. While retail expenses continue to rise steadily, healthcare inflation is growing at an alarming rate.   

When planning your retirement, inflation is a vital factor to consider. If you are unable to keep up with rising costs, you might have to compromise on your lifestyle. Further, most families are now nuclear. For generations, older Indians have depended on their children for retirement support. Lately, youngsters are leading more independent lives. Hence, being financially independent during retirement years is a must. Retirement is the only goal for which one cannot get loan and hence needs to be addressed wisely. 

India is largely an un-pensioned society and most people do have not have any safety net in the form of a national pension programme. Over the last 20 years, interest rates of government small savings schemes have dramatically decreased. As our economy grows, money supply will also grow and interest rates will come down even further. You need to save more and create a larger corpus in order to generate sufficient income to meet your post-retirement expenses.  

Steps towards Retirement Planning 

A good retirement plan should be segregated into three phases -  investment, accumulation, and withdrawal. To begin with, estimate the money you would need to sustain. Next, estimate how much of it can be covered using your assets. This can help you arrive at the deficit amount you will need to plan and arrange for the future. Analyse your present financial situation to gauge how much you can save. 

If you are 30 years old and your current monthly expense is Rs50,000, your monthly expense will be nearly Rs2.3 lakh when you retire at the age of 60 and Rs5.7 lakh by the age of 80, assuming an inflation rate of 5%. Apart from inflation, certain types of expenses like medical costs will also increase with age. One needs to accumulate a sufficiently large corpus to meet expenses after inflation and other expenses.  

This calls for thoughtful retirement planning with a view of long-term wealth 

creation. Compounding is often referred to as the 8th wonder of the world, and for a good reason. If you save a considerable portion of your monthly income and set it aside in the right investment avenues, your money will compound and build a sizeable nest-egg for your retirement. 

Given that the aim is wealth creation over long term, it is imperative to have a well-diversified portfolio consisting of various asset classes. Historically, equity has outperformed all other asset classes over long term and has generated sizeable wealth for a patient investor.  

One of the easiest and simplest way to invest for retirement planning is through a mutual fund systematic investment plan (SIP). Depending on your investing needs and risk tolerance, you can use SIP to invest in a mutual fund scheme of your choice using your regular monthly savings through auto-debit from your savings bank account. SIP can be a disciplined approach to investing because it forces you to make regular investments. 

To conclude, retirement is a non-negotiable reality. It is best to start your retirement planning as soon as you can so that your later years are relaxed and you can live a financially secured life. More than anything else, you will not have to depend on anyone financially if your retirement planning is spot on.