Retirement Planning – Part 1

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[This is Part-1 of the post “Retirement Planning”.  The post will be concluded in 2 parts.]

          Simply put, retirement is a phase of life, in which, you don’t work for a living anymore and can spend the rest of your life in whatever way peacefully you want it to. Ideally, at the time of retirement, you should have enough corpus/investments/income sources to spare you from any work that you need to do in order to allow you to focus on the things that you want to do. There may be many ideas about hobbies, touring, charity work, being a family person etc. that you might have cherished passionately throughout your life and wanted to fulfil them after you retire. Retirement, when planned carefully, can be a golden period in your life as it brings you three things to make your rest of the lifespan happier than ever; time, money and the maturity to realise the value of both of them. While these all presents a rather fair picture of one’s retirement, the path leading to such an ideal situation is full of challenges. And to overcome these challenges, the term Retirement Planning(RP) comes into the picture. But we will get to that in a bit.

Retirement in India

          In Indian parlance, retirement is viewed differently among the people of different workgroups.  While the official age of retirement in government and other corporate organisations is in the range of 58-65, the same cannot be determined accurately for the rest of the people as most of them (almost 80-90 percent) are associated with an unorganised sector. Also, the retirement in India, is both affected and decided by many factors such as social structure, demographics, financial position, etc.

          Historically, India’s societies have been family driven. In rural and semi-urban areas, people are still living in joint families as opposed to the growing modern trend of nuclear families in urban areas. The purpose of this establishment is to stand side by side with family members through thick and thin. The younger members are supposed to take care of the older ones while the older members play a supportive and guiding role all the way. As for the retirement, among unorganised sector, people never fully retire. You may not see a clear transition from fully working to fully retired as you would in case of an employee of some PSU. In fact I have seen people work till their very last breath. While most of time, weak financial prospects will be the reason behind that, many people continue working out of choice.

Changes are all but evitable

          The status quo regarding joint families is changing as more and more people are migrating to urban areas in search for better jobs and overall living. This phenomenon has lead to nuclear families coming into existence. While it is difficult for older family members to leave their native place and adapt to new places and environment, it is like a necessity for their children to venture out for the sake of future growth and better prospects. Other factors driving this change are raising costs of commodities, rentals and healthcare to support large families, emotional attachment of elders towards home place, rift in families due to generation gap, etc.

          This has created serious financial problems, especially for old age parents who depend on their children’s income. With children moved out and settled elsewhere, these parents have no other option than to find out some kind of an employment to earn the living. Children, on the other hand, will have the burden of a raised cost of living due to their new settlement. So, they might be unable to help much even if they wanted to. In this scenario, the period which would normally be a retirement period for such parents, in reality, proves to be a very difficult time. And if, there arises any medical emergency, which is anyway a very costly affair these days, they sunk further into despair and there is also a possibility of getting trapped into an unsolicited debt.

          As I said, retirement can be a golden period, but in such cases it proves to be a nightmare. This situation is a reality for so many old age people in India. They even struggle to earn for food, let alone fulfil their dreams. Retirement is affected by many things. Financial instability, deteriorating health, unexpected expenses and such things make the life in retirement painful, a burden and a sour dream.

Retirement Planning

          Although planning a retirement might have been considered an unimportant thing among groups of people in India, the main reason people suffer in old age is lack of awareness/enthusiasm about planning their retirement. Even people from organised sector, like the people working in government, some PSU or in private organisations too neglect the issue believing that they have their retirement needs taken care of by respective company/government. But it may not be adequate as such schemes are not planned keeping in mind individual requirements, and hence, may not be tailored to person by person. It is, therefore, important that each and every person working in any sector plans for his/her retirement. And it should be started very early during a working phase. The earlier you start, the more likely you are to achieve your retirement related financial goals early and successfully.

          Retirement Planning (RP) isn’t just about saving money during your work life. It’s more than that. In fact, it’s an inseparable part of one’s Financial Planning. While doing your comprehensive financial planning, you also choose a few financial products and an investment strategy for your retirement. These enable you to earn good enough amount in your retirement. Okay, here are few things to consider. Suppose, right now, you are 25 and you have decided to retire from work at 55 no matter what. So, how would know beforehand that how much monthly income you will need in order to keep up with your desired lifestyle in retirement? What will happen in case of some unfortunate event or a medical emergency in family during retirement? What are the investment options that can give you desired returns and what is the risk? You answer all these questions by planning for your retirement. It is not a onetime process. It continues till the time you retire and even beyond that and also requires your attention at regular intervals.

          Moreover, you need to take into account inflation while calculating your retirement corpus. You can find calculation software/Excel sheets online to calculate retirement corpus. Although there are number of such tools available, just keep in mind that a tool is only as good as the data you feed into. Only you can decide what kind of lifestyle you want in retirement and for that what kind of financial products will suit you. It is probably impossible to assert the exact retirement fund figure, but with accurate data you can get as close as possible. Just remember that RP is dependent on how early you start saving/investing, the asset classes that you invest in like stocks, mutual funds, gold, bonds etc, and how disciplined you are in subsequent investments/reviews. [Asset classes, investment options and strategies will be covered in Part-2.]

But don’t forget your health

          While planning for RP, one of the most important and often neglected aspect is taking care of one’s health. Without good health and sound body as well as mind, how actually, are you going to spend the money that you might have accumulated by the time you retire? Good health is a key to long life and it requires quite a few healthy practices. In above example, suppose you plan for 20-25 years in retirement. It means you want to live at least until 75-80. It is possible. Modern medical science advancements, nutritious food, advanced medicines and surgeries, etc., have pushed back the average mortality age for several years. But if your body is riddled with too many ailments during retirement, life will feel like a burden and despite having enough money and time to spend, you will hardly be able to enjoy your retirement. Now, to retain good health in your retirement, it is necessary that you start taking it seriously early in life. Spare a time from your daily schedule and do regular exercises. Take medical insurance for you and your family. Eat healthy food, do yoga to relieve stress and always try to stay in good mood. Keeping your body and mind healthy now will make you worthy of enjoying your retirement period later.

          You require health to spend the wealth you acquire. It will not only expand your lifespan, but will also enable you to fulfil your dreams and ideas during that life span. Therefore, always give due attention to health while planning your retirement.

          So, that’s it for this post and I wish you all a Merry Christmas. Stay healthy, both physically and financially.

Will be back soon…

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