Enjoy your Retirement by Planning Very Early

62 per cent of the population works after retirement to sustain themselves; 76 per cent depends on their children

Enjoy your Retirement by Planning Very Early
Enjoy your Retirement by Planning Very Early
Manish P. Hingar - 28 April 2021

It a very easy to ignore the phrase "Planning for Retirement". Until the age of 45, most people think that we have enough time to think about retirement and don't need to bother. People between 45 and 60 years think that they have enough funds to retire peacefully. Studies say that 62 per cent of people post-retirement do a job or work because they can't afford to quit the job or profession. 76 per cent of people end up retirement by depending on their kids or some government benefits.

"If you born poor, it's not your mistake.

But if you die poor, it's your mistake."

In today's less emotional world, retirement will be the biggest challenge in coming years. With the youngest brigade, India will undoubtedly take the heat of retirement in a big way in the coming years as we don't have social security systems or government aid after retirement. We have to manage our retirement from our corpus. Most people today between 45 and 55 years think that I have XX amount of funds and it will fetch me 7 per cent of risk-free return, and that is enough to retire peacefully. But that is actually the most common mistake. We can not be sure if we will get a 7 per cent or 8 per cent of risk-free return when we saw a sharp decline in rates in the past few years. We can not make assumptions in today's scenario. My suggestion would be to keep a 2 or 3 per cent risk-free rate of return for calculating post-retirement corpus.

The second common mistake I found in the Indian context is that people give more weightage to goals like child marriage that incurs heavy expenses. They even withdraw money from their Provident Fund(PF) for their grand celebration. They feel that post-retirement, their kids will take care of their well-being in the same way they are treating their parents. It's the biggest misconception, that the way we are shifting in a more electronic world where people connect less emotionally and more electronically, and our society is slowly adopting western culture, it's rare to find "Ram and Laxman or Shravan Kumar" in our kids. You need to take care of your retirement and give utmost priority. It will be your sheer fortune if our children support us post-retirement.

Retirement planning is crucial and deserves time and assistance from an expert. While doing so, ask the following questions to yourself:

1. How much retirement corpus should I at the time of retirement?

2. How can I diversify and create more than two sources of income post-retirement, which are risk-free and will continue till life?

3. How much amount should I set aside for my retirement from now?

One should consider retirement planning from the age of 40. The more you delay this, the more sacrifice you need to make in your retirement. One can easily find the exact amount of saving that one needs to save for the retirement corpus. The very simple process to do retirement planning is as follows:

1. Find out how much amount you need every month post-retirement, considering inflation, medical expenses, and other factors.

2. Divide this amount into two or three parts as separate income streams.

3. Find the right asset class where you will put or invest your money to get desired income at the time of retirement. The ideal three asset class to give you post-retirement income is your PF corpus, your mutual fund corpus that you dedicate for retirement and one commercial property to get high rental every month.

4. Find out the exact amount you need to invest today to create an assets class, which can fetch the desired income post-retirement.

If you are from a non-finance background, I would suggest you take a Retirement Planning service from a financial planner. But if you find yourself comfortable in doing some excel calculation and come out with a number, you can go on to do it yourself.

The author is Founder, Fintoo

DISCLAIMER: 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.