A Meaningful Retirement

An early retirement is desirable, but looks difficult given the rising costs and unpredictability of interest rates

A Meaningful Retirement
A Meaningful Retirement
Shipra Singh - 21 August 2017

At 42, Patiala-based Sonia Goyal is midway into her retirement plans. No, she is not going to retire at 84, she will be retiring in another eight years. “I plan to retire when I turn 50 and have been working towards it over the past seven years,” she says. In distant Gurugram, 26-year-old Abhinav Dhar has plans to take voluntary retirement between the age of 35 and 45. “The actual time of retirement will be a function of my financial health, satisfaction with a job and the opportunities that I’ve scoped out to keep myself engaged once I stop working fulltime,” he says.

Two contrastingly different people from different places, but the desire to retire early has caught the fancy of several Indians. Some plan to do nothing active once they call it a day, even while some are cautious enough to state that they would continue to work in some fashion, but the chase to earn a living won’t be the case. “People underestimate retirement expenses. Even for people with a modest lifestyle, Rs 40-50 lakh is not a sufficient amount,” warns Suresh Sadagopan, CFP, Ladder7 Financial Advisories.

Those planning to retire early must factor in 2-3 decades of life in retirement, because of the rise in longevity and improved healthcare amenities. “I learnt it the hard way, when my plans of early retirement did not work out,” says Delhi-based Harkesh Singh, 52. Singh, worked with the Army for 26 years, after which he was forced to retire. He did have the defined pension on retirement and had also created a second income stream by way of rents from a house in Gurugram, but the plan was a strain on his finances.

Drawing up a plan

Retirement planning is a two-step process— you need to save and invest amply towards a retirement corpus which you can live off when you actually retire. And, a second phase, when the corpus needs to maintain its value and also pay you a regular income flow. “At retirement, a careful selection of retirement distribution strategies must be done with a financial advisor. Factors like tax efficient withdrawals, inflation adjusted returns and longevity in returns should also be considered,” says Dilshad Billimoria, CFP, Dilzer Consultants.

When it comes to saving for retirement, one should ideally start setting aside money from the day one starts earning. There are several financial instruments that exist to achieve the first need to build a sizeable corpus. Among them are provident fund, PPF, NPS, mutual funds, insurance plans with retirement as a riding benefit among others.

“The major problem in retirement planning is that inflation is not factored, which slowly depreciates your savings,” explains Billimoria. All fixed return type options like PPF, EPF, FD and small savings barely match the long term inflation rate, which means effectively, one is not making any real gains by putting money into them. So, although Goyal is saving earnestly towards her retirement, the choice of instruments is not the best for her to comfortably reach her desired goal.

Get it right

Lack of adequate planning is a major factor that results in one not getting their retirement act right. A way to make retirement go as planned is to make a regular contribution only towards this financial goal. Next, do keep a tab on your monthly expenses as you near retirement, as this will give you an idea on how much you will actually need when you retire. Most importantly, you should not have any financial commitments or obligations when you retire. “Both my sons are studying. I have to take care of them till they are settled. I have taken up work again, and plan to work towards retirement a second time,” says Singh.

For Dhar, the decision to retire early is very nebulous, and may change over time. It could happen to Goyal too. However, the lesson for others is to not just have a plan to retire early, but work towards it. Nuclear families and a fast changing lifestyle are all ingredients that could be the difference between retirement as imagined versus what it turns out to be. It is better to have more money to retire with than face a situation when your savings outrun your life.

When you start saving towards retirement, do so based on the income that you earn, and gradually with time change your retirement goal, with what is likely to be the expenses in retirement. By adopting this approach, you are likely to create a retirement corpus which may just about work. At any given point in time, do not forget to continue with health insurance and have adequate life insurance if you have financial dependents. And, be realistic about when you can afford to retire for you will need the money to enjoy life in retirement.