Retirement. The word evokes in you an image of you in your sixties, sitting peacefully in the sun, nodding over a book while your coffee gets cold beside you. Reminiscing of a life lived well and to the fullest. Now do a quick rewind and go back to the point when you started doing your investment planning. You didn't? Oh, you started in your 40's? 30's? Well, sorry to pop your bubble because in that case, our retirement is not going to be as hunky dory as this image in your head.
So when exactly do you start planning for the sunset days of your life?
And more importantly, what is retirement planning?
Retirement planning involves managing your short-term and long-term finances to achieve your financial dreams, not just during your working years but also post retirement. This includes making an in depth analysis of the current financial position, your financial goals, and expected cash flow channel in the future. Without a safe retirement plan in place , you run the risk of outliving your savings and being able to maintain your lifestyle or leave enough for your dependants in case of an eventuality.
Consider that you need 70-80 per cent of your pre-retirement income after retirement; now this, coupled with the fact that a delay of 10 years in retirement planning investment means a 50 per cent drop in your total retirement corpus, means that you need to start investing early. As early as in your 20's, because after all there are things called medical inflation and cost of living which affect how much money you need in your later years.
Here are some points to keep in mind while planning for your retirement.
1. Projected expenses: No discussion around retirement planning would be complete without talking about inflation which, in India, is expected to rise at approx. 5 per cent per year. This leads to an increase in the overall cost of living. Even a slow and steady rise in the price of consumer goods over time can cause a bigger dent in your pocket than you think possible. So pay special attention to the Time Value of money when you plan your retirement corpus. What you think is sufficient today might not even be close to what you need in the future.
2. Medical expenses: As per a report by Mercer March Benefits, healthcare expenses are expected to rise at 10 per cent per year. Many people forget to factor in the possibility of failing health conditions or medical emergencies in the future. So in all probability, you will need solid financial backing for your healthcare in your post-retirement years.
3. Investments and taxes: What is the return that you shall get on your investment? There is no sure shot way of getting a fixed figure since the interest rate trajectory is unpredictable and keeps on fluctuating as per the economy. Neither can you predict the future of tax policy and its implications. The economic future is vague. Don't assume you will only get the best out of all your investments because all your plans on that front can go wrong too.
4. Life span and when do you want to retire: These are the most important factors while planning retirement in order to determine the size of the corpus you will need once you stop working. The average life expectancy of an Indian today is 55-60 years. By 2024, it is estimated that the average life expectancy of men who reach 65 years of age is going to rise from 82 to 85 and of women from 85 to 88. People have also started retiring early, many of them at 50. The earlier you retire, the more you need to maintain a good lifestyle.
One good way to invest is with a unit-linked insurance plan like Click 2 Wealth from HDFC Life. Not only does it give you market linked returns and flexibility in your investment cycles, it also safeguards your child or spouse's future, in the event you're not around.
When you are in your 20s-30s, you are able to save more. If you aim for it, you can actually save 40-60 per cent of your entire income because at this age, you do not have many responsibilities, dependants, or unavoidable expenses. As soon as expenses increase, the scope for saving decreases. You need to set a goal and keep your eye on it. It's never too early and always too late to start your investment planning.
Do it right away!