Do your Retirement Planning…..TODAY !!
Retirement has changed
radically over the last several decades in India. Years ago, when you expected
to work most of your life for a single, large employer, you could count on a
pension. Now at the time of retirement, you should have enough
money which should be enough to maintain your same living standard as you were
maintaining before retirement.
Most importantly, it means
retirement planning must span the entirety of your adult life --- it is not
just something you figure out while cleaning out your desk the day you turn in
your keys and say goodbye to co-workers. Additionally, good planning takes time
and effort and you bear the responsibility for steering your own course,
whether it be done on your own, with help, or by delegating to professionals.
In general, the more you
maximize your income and saving and control spending while working, the better
off you will be in retirement. Obviously, the fewer resources you have and the
more challenges you face, the more important it is for you to be fully engaged
in understanding your options for retirement planning, get the expertise you
need, and make good decisions.
How Much Money Will You
Need for Retirement?
Whenever I ask my
clients when discussing their retirement plan is, ‘how much income do you need to maintain your current lifestyle in
retirement? Not surprisingly, for the vast majority the answer
is, “I don’t know,” or they’ve made inaccurate
assumptions. If the assumption is too high, the goal of retirement
may seem absolutely unattainable, and the entire planning process is
discouraging. If the assumption is too low, which is most often the case,
the retiree could run into a difficult financial situation later in life and
have to make drastic, unwanted changes. The main goal
before you retire is to make sure that you have enough money when you do retire
so you can maintain your standard of living. How much is enough depends on when
you wish to retire, what your anticipated living expenses will be, what rate of
return you can expect on your savings, and whether you will continue to work at
all after retirement.
The anticipated date of
your retirement affects two important factors: how much time you will
have to save up for retirement and
the number of years you can expect to live after you retire. A qualified Wealth
Manager helps you sketch out your retirement plans in terms of timing and
lifestyle considering the expected inflation in rupee value. Once you put these
down on paper, the financial planner can help you calculate how much money you
need to have set aside to meet your goals and how it should be invested.
Unfortunately, the answer will likely be that "You'll need more money than
you think." Indians are living longer than ever before and inflation
inevitably eats away at the value of amount saved.
By providing a few details
about yourself and your finances, the Wealth Manager can predict how much you
need to save to achieve your retirement objectives. These financial
advisors can provide a rough idea of about your target for
retirement. They will also adequately assess the risk of running out of money.
Once you have an idea of
how much you will need, here are other factors involved in determining how well
you will manage your retirement savings:
1. The total amount you
contribute over time
2. How you save (all at once
or little by little)
3. What kind of investment you
use (savings accounts, bonds, stocks, mutual funds)
4. How much your savings or
investments grow, less expenses
5. How long you have before
you begin spending your retirement savings
6. How you plan to take money
out (again, all at once or little by little)
7. How and when your money
will be taxed and by how much
8. The inflation rate over the
life of your retirement planning.
When to start Retirement
Planning?
It is never too early to
start retirement planning.
With the inflation rising
to a record high, simply thinking about the retirement amount you would need
after several years is not enough. For you to have a sufficient corpus for the
sunset years, systematic planning early in life is a prerequisite.
If one assumes that an
average individual works upto the age of 58 years, it would mean that
he/she would work for approx 30 productive years and further if
he/she continues to live upto 88 years, then he would leave a retired life for
30 years. Therefore the challenge for an individual is “how to fund these
UNPRODUCTIVE retirement years. This is 30: 30 challenge.
If you start investing Rs. 10,000 per month at the age of 28 years
(for 30 years) till the age of 58 years and the rate of return is 12 %
p.a. then the corpus at the age of 58 will be Rs 3.53 crores. But
if you invest it at the age of 33 (for 25 years), the corpus will only be
Rs. 1.90 crores. Thus it is better to invest as early as possible to get the
benefit of power of compounding. The Wealth Managerwill guide you
the monthly amount which is required to be invested to get the desired corpus
at the time of retirement. Start by investing a small amount every month, and
increase it gradually. The best way to accumulate a nest egg is saving money
regularly and investing in instruments that help it grow.
Where and how to invest for
Retirement?
When I discuss with my clients about various options for investment then
most of them don’t know where to invest. There is an old saying, “Slow and Steady wins the race”. Same
rule applies here… if you see the younger generation, you will see that their
spending is normally without planning for the future. The tales of youngster
being in debt and depending upon credit cards is becoming a common phenomenon.
Eating out and shopping is not a rare phenomenon anymore, rather a common
weekend activity.
Despite starting the months with the decision to save at the end of the
month there is hardly anything left in the bank account. The intentions are
often not reflected in the action. Why is this generation not being able to
save and invest successfully? A miniscule percentage in our country invests. A
simple change in lifestyle could possibly change this habit.
In this scenario, it is necessary that we invest a fixed amount per
month regularly and then increase it as per your capacity over a period of
time. In old time Recurring Deposit (RD) were very popular but in that the rate
of return is very low. It hardly beats the inflation. Now a days SIP in various
mutual funds are good options but before investing in mutual funds it is
important that you take the help of good Wealth Manager.
As people age, their asset allocation has to undergo change. When they
are young they need to accumulate wealth because they have time on hand. At
this age investment in equities can be good option. However it is not advisable
to invest in equities directly. You should invest in equities through good Mutual
Funds. However as people approach middle age, the proportion of equity in their
assets needs to reduce while the proportion of debt needs to increase. It is
important to note that the mutual funds yield good return in the long term
which you should consider 10 years or more. Before investing in Mutual Funds it
is important to take the help of good and experienced Wealth manager who can
guide you which fund to chose keeping in mind your retirement goal? A
successful investment plan is that which is reviewed and boosted periodically.
Where to invest the
retirement fund?
After retirement you need regular and steady income to meet your day to
day expenses and to maintain your living standard. Thus the corpus available to
you at the time of retirement should be invested in such a way so as to give
you risk free return every month. At this time you are not advised to invest
the money in equity as it is quite risky at this age. You have to invest in
either Income Funds of mutual Funds or Fixed deposits in the commercial banks.
There is some scheme of Post Office also which give regular return when you
deposit a fixed amount there.
Thus you have to quite careful while investing your hard money available
to you at the time of retirement as you have to use its return and not the fund
for your expenses. It is like eating eggs daily rather eating the hen.
It is there important that you should start your Retirement Planning
now.
Enjoy your retirement Life Respectfully !
