Today, being safe is being happy. Your retired life, too, can be H.A.P.P.Y. Here’s how.
H: Have A Plan
Your retired life may be longer than you think. According to data from the World Bank, life expectancy for India in 2019 was 69.7 years; almost 15 years more than what it was in 1980. A longer lifespan is great news, but it also means a longer retired life, and that much more planning is now required during your earning years to sustain post-retirement living expenses.
Clearly, the data point indicates the need for one to plan for retirement. So start planning. No plan is perfect, but having a plan is non-negotiable. And the discipline to keep revisiting the plan, and adapt it to one’s changing realities is non-negotiable as well.
A famous quote attributed to the former US President Dwight Eisenhower is, “A plan is nothing, but planning is everything”. This is particularly true when it comes to planning for your retirement. A plan that you draw up today may not be particularly relevant 10 years later due to either increased affluence or inflation or maybe drastically different professional aspirations. What is required is a constant, ongoing process of reviewing what you have saved vis-à-vis what you need and that on-going process is what retirement planning is all about.
A: Assess Your Post-Retirement Lifestyle
The first step in retirement planning is to try and visualise what your retired life will look like. Some broad level questions could be which city one plans to settle in and will it be an owned house or rented accommodation. These might seem like questions that are too “far off” for you to be able to answer with precision. And that is a valid point. However, remember the earlier point about planning being an on-going process. So, start with some “best estimates” and as you keep moving closer to retirement, you can fine tune these estimates to get better precision.
However, the first step has to be about visualising because only then will you be able to set a “how-much-will-it-cost-me” figure to it. Broad expense heads that you should think of are accommodation, food, regular medical spends, and other lifestyle related expenses. The sharper your visualisation, the more granular will be your estimation of expenses of life after retirement. Needless to say, ensure that you factor in inflation when working on this step.
At the end of this step, you should have a rough idea of the monthly expenses that your life after retirement will entail at that time.
P: Project Growth In Savings
Once you have arrived at the monthly expense number, the next step is to arrive at how much your current savings will grow to till the time you retire.
Most of us would have saved up some amount. This could be in deposits, Public Provident Fund (PPF), mutual funds, real estate or the myriad other avenues that are available. Clearly, not all of them will go towards retirement planning. For example, some of these savings may have been made for your children’s education. This step forces us to identify which of our savings will actually go towards funding our life after retirement. Like in the earlier step, there will be an element of estimation involved, but that is exactly the point. The more we think of our investments through the lens of which goal they serve, the greater the chance of our plan meeting its designated goal.
Having identified that part of your savings that are meant for retirement, you will now need to project how much this will grow. In the earlier step, you assumed your expenses to grow at the rate of inflation. In this step, you will assume that your savings will grow at a certain rate.
P: Perfect Plans For Retirement
By now you have a fairly clear idea of what your life after retirement is going to cost you. You also have a fair idea of how much your current savings will grow to and thus address a part of your post-retirement expenses. What remains is the step of bridging the gap.
For example, if your estimation tells you that life after retirement is going to cost you Rs 50,000 per month and that that your current savings will provide for Rs 30,000 per month, the ask is to plan for the balance Rs 20,000 per month.
Once you have a clear understanding of the deficit, the next step is to identify the right plan to help you bridge that gap. There are many investment routes you can take to secure a retirement plan. Which plan you choose to take depends on investment outlook, risk appetite and the amount that you can start setting aside.
One of the types of plans to secure retirement income is an annuity plan. An annuity plan ensures a guaranteed regular flow of income throughout your retirement years.
An immediate annuity plan is where you begin receiving a pension almost immediately after you have invested in the said annuity product. This is relevant for people who are on the verge of retirement or have already retired. A deferred annuity plan allows you to invest today to start getting a retirement income in future. Typically, you can choose to start the income after a period of up to 10 years.
The key feature of annuity plans is that the guaranteed income will continue for your entire life.
Y: “Your Time”
Last but not the least, it is important to remember that retirement time is “Your time”. All the things you have sacrificed during your working years-- passions, hobbies, friendships and relationships--retirement is the time to reclaim all of those.
Financial planning is an important part but definitely not the only part to be planned for. Planning holistically for your retirement and what you want to do in that chapter of life will ensure that you approach it with a sense of joy and anticipation which is exactly how it should be.
Disclaimer: The views are that of the individual and do not necessarily reflect the views of the organisation. Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
The author is Head of Products, ICICI Prudential Life Insurance.