We have seen India change
over the last two decades. Notably there has been a change in the lifestyle of
the working population. The purchasing power has increased considerably and so
have the expenses.
An improved lifestyle, better
healthcare and medical facilities have led to increase in the lifespan of the
average Indian. In the past, a salaried person would retire at 60 and live up
to the age of 67. However, now the lifespan of an individual post-retirement
has increased by at least 20 years. This implies that an individual needs to
have sufficient funds to be able to lead a comfortable life once one stops
working.
If a person spends Rs 25,000
a month today, assuming an inflation of 7%, his expenses after 25 years will
increase to Rs 1,36,000 a month. Add to this the medical expenses, which
increase with age and occasional expenses such as gifts - it could actually
exceed Rs 1,50,000.
Most private sector companies
do not provide pension. Additionally, the rising trend of nuclear families,
increasing cost of healthcare, inflation etc. - all these factors make it
necessary for an individual to plan for retirement.
The objective is to have a
regular flow of money after retirement that will enable one to manage the
increased expenses without compromising on their lifestyle.
Today, consumers have access
to products which enable them to plan for their retirement. While awareness
levels for retirement planning are high, most of us delay investing for it.
Starting at an early age can significantly enhance realisation of an
individual's dream to achieve financial independence in the golden years.
When is the right time for me to start
retirement planning?
Well, in case of retirement
planning, it is said 'the earlier the better'. However, it is never too late
either. Starting early gives you the benefit of time, which coupled with the
power of compounding, enables you to create a sizeable corpus that can enable
an individual to take care of the expenses when income from profession stops.
Let us look at the table below for two different ages (to start retirement
planning) and see what you can expect by the time you are 60.
Though the amount required to be invested is
more if you delay your planning, the key word is 'regular investment'. It is
only through regular disciplined investments that you can put aside a corpus
that will generate enough income to enable you to live your life comfortably
after retirement.
How do I plan for my retirement?
Retirement planning can be done in 3 simple
steps:
Step 1: How do I calculate my expenses post
retirement?
Take into account your current expenses and
factor in aspects like inflation, increased medical costs, vacations, gifts for
family etc. You will then arrive at an amount that you will require for living
comfortably once you have retired. You need to keep in mind that inflation will
cause your expense amount to increase (even if you are spending on the same
items). One can eliminate costs like children's education and rent, if you own
a home.
Step 2: What will be
the savings pool I need to build?
Once you have an idea
of your expenses you can accordingly establish the quantum of amount (corpus)
required to be built - the amount that you need for meeting the expenses. This
savings pool will be created taking into consideration the inflation
factor.
Step 3: How much do I
need to save now?
Depending on your
financial status determine the funds which can be put aside for building the
desired retirement corpus. Start saving now so that you have time on your side
and can enjoy the power of compounding.
If a 35-year-old
person wants Rs 50,000 every month for meeting expenses after retirement, he
needs to start planning now.
A corpus of Rs
75,00,000 will be required to generate the desired amount. For this purpose,
one needs to invest Rs 10,000 every month in a retirement plan.
How should I choose a
retirement plan?
Studying the features
and the charge structure of a retirement plan is important. Ideally selecting a
plan which has a low charge structure enables you to contribute more towards
your investment. A good retirement plan would:
a) Provide returns
that beat inflation.
b) Give you the
flexibility to choose your investment strategy as per your risk taking ability.
c) Protect your
capital from market fluctuations.
d) Inculcate a regular
saving habit - to ensure the corpus is built in an uninterrupted manner.Source : http://economictimes.indiatimes.com
