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  • Wed Apr 19,2017

Approaching the finishing line

The last leg of your financial life can be enriching if you have more time to pursue the hobbies you put on hold

  • Approaching the finishing line

By Preeti Kulkarni

Retirement is the time when you finally get to do all the things you said you were going to do, whether it’s catching up on reading or travelling or simply putting up your feet on a stool and doing nothing. Yes, all of this is possible if you have got it all planned right in the earlier stages of life. However, life is not that easy and things do not necessarily go as planned for many people. Yet, this is the stage in life when there is little room to navigate the retirement conundrum.

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There are many in their 20s, who want to take an early retirement these days. They wish to stop working when they are 50 and some would like to advance that to 45 and even earlier. There is no harm in aiming for an early retirement as long as one realises that we are all going to be living long. Many of us are going to be living a much longer life in retirement simply because of medical advancement. We have said this in the past and are repeating it for those who may have missed out, when planning for an early retirement, one should keep in mind that we will be working lesser number of years but will need the money for much longer.

If one adds the conventional financial needs cycle of a house, car, providing for kids and saving for retirement—it is a big task to think of retiring early. Of course, you may be a lucky one to have setup a start-up, which got bought, leaving you with tons of money to actually live the dream retirement. Delhibased, Archana Dhawan Bajaj, 46, a gynaecologist and obstetrician is looking for a peaceful retired life four years from now and is working hard towards it.

On the retirement path

“I want to try and double the turnover of my clinic in the next three years and have a recurring retirement income before I am 50,” says Bajaj. She has been practising for more than two decades now and is debt free. Her husband Umesh is a businessman and their 24-year-old son Umang is pursuing his MBA in the UK. The biggest advantage that she has is her profession— technically there is no retirement age for a doctor, which should allow her to be flexible with her retirement if need be.

“At this age, a lot of liabilities would have already been cleared or be on the verge of repayment. Children too are grown up and settled in life. With 5-10 years of working life to go, you need to look at critical aspects—having regular income and health cover in place,” advises Khalid Ahmad, Head Products, PNB MetLife. Health insurance is a must at all stages in life, but one cannot afford to be without it around the retirement stage. There are policies that cater only to the retirees and one must explore them if one does not have an individual policy in retirement.

Says Sanjay Datta, chief, underwriting, claims and reinsurance, ICICI Lombard: “Depending on the age and life stage one needs to consider health covers like outpatient cover, optional benefits, no claim bonus, free health checkups and cost sharing features like co-pay, room rent capping and deductibles. A comprehensive plan will cater to healthcare needs which include inpatient hospitalisation cover, outpatient treatment cover and maternity cover.” Basically, one needs to be healthy and also have adequate health insurance to meet any contingencies.

But there are challenges that one could face at the cusp of retirement—the retirement corpus may seem insufficient. Gurugram based, 59-year-old Sanjay Saksena is grappling with financial challenges in retirement. “I took a voluntary retirement three years ago when I was the CEO, Indian Commodities Exchange, as I wanted to come back to Gurugram to be with my family,” he says. Saksena’s wife continues to work with an MNC, with one of his daughters married and the younger one in college. Though he has invested in real estate and equities, which over the years will provide him with a steady income as well as growth, he is a worried man.

Avoid these mistakes

Retire all your debts before you retire and if possible, keep a few years before retirement where you are completely debt free. “The highest priority should be to become debt-free before retiring so as to lead a comfortable and stress free retired life,” says Amar Pandit, founder, Happynessfactory.in. With income stream drying up when you retire, if you are also left servicing debt, a chunk of your retirement income will go only to pay off your debt.

But for many people, the actual realisation of retirement sets in after the first year of retirement, when they realise there are many more years ahead. Take for instance, retirees with children settled abroad—many of them do not count the multiple foreign trips they need to make and the costs associated with it. The impact of inflation on savings is another factor that is very often overlooked. “I did not factor in high education costs when I was retiring. I also did not factor in the cost of services, many of which one takes for granted during one’s career, as they are taken care of by the employer,” explains Saksena.

Another must-do is to protect their retirement savings corpus. “Individuals who are retired cannot afford to lose their hardearned retirement corpus. Hence, investments should be predominantly in fixed income bearing debt instruments which offer assured income and safety of capital,” says Rahul Jain, head- personal wealth advisory, Edelweiss Broking. At the same time, he advises one to have a smaller portion of the corpus in equities in order to beat inflation. Either equity or debt approach is a sure-shot way to financial hara-kiri. One must have a mix of the two, suiting one’s risk profile.

Retirees and pre-retirees should be careful of financial advisors, who are more often interested in their share of earning from your retirement corpus by suggesting financial instruments that may or may not work in your interest. Be cautious by not getting sucked into their sales spiel, which more often highlights the rosy picture and does not detail the risk that these instruments pose. Do check costs and fees these intermediaries would earn and understand how their suggestion will work in your interest. There is no point ruing about a market-linked insurance at 63, because of your poor awareness.

Smart moves

While playing safe seems like a sound strategy to many, it may not necessarily be the case. “Following an extremely conservative investment approach can result in returns being less than inflation which can lead to capital erosion at a faster rate,” points out Jain. “Retirees end up with lower post tax income by investing only in pension plans or FD-like products,” adds Pandit.

Tax efficiency is something that every individual should consider with their savings and investments. This factor is heightened in case of retirees, who should not be looking at putting money in instruments that are tax inefficient. For instance, letting money idle in the bank or having too much money in bank deposits which earn negligible returns are all avoidable. In contrast choose tax efficient instruments that are alternates like liquid and short-term funds to make the most of the retirement savings when creating income streams.

The avenues you choose should also be capable of yielding recurring payouts. “For people approaching retirement and ones who have already retired, investments should be made in avenues that generate monthly income i.e. debt funds, to meet their regular requirements,” advises Avnish Jain, head–fixed income, Canara Robeco.

The essence of a happy retirement is to be worry free, especially with money. If you have planned well, things will be smooth, if not, brace yourselves for some turbulence. Bajaj is clear that she does not want to actively work to earn money in a decade from now, something that she is working towards. You could be like her if you set about planning for it from now on.

Essential retirement checklist

  • Be debt free
  • Have adequate health insurance, including critical illness cover
  • Create income streams to meet both fixed and variable expenses
  • Continue investing with equity exposure to suit your risk profile
  • Cut down spending on unwanted things
  • Draw up a will and decide how you wish your money to be used