I am too young to think of retirement. I need to get my child through school, I need to get him married, I need to buy a car and a house…I don’t have the time or money to spare on retirement planning just now. You say all this, and then you wake up one morning when you’re 50 or so and realise you are staring retirement in the face. Can you put together the Rs 2-3 crore or so that you will need for the next 20-30 years in under 10 years? Seems an impossible task, doesn’t it? Ask Chandigarh’s J.S. Gogia, now 63, who started planning for retirement when he was 53.
Gogia had not ignored his retirement completely and had salted away some money for his sunset years. But he dipped into his savings regularly—when he needed the down payment for his house, to fund his daughters’ education and then weddings. “I knew I should keep something aside for my retirement. But there were other pressing demands,” he explains.
At the other end of the spectrum is R.K. Yadav, 61, who started planning for his retirement when he was in his 30s. He wanted to build a corpus of Rs 50 lakh and own a home when he retired, and has more than achieved both objectives. The good news is that Gogia also managed to create a sufficient corpus for his retirement years. All it took was disciplined investment with a dash of creativity. “Most 50-plus investors who haven’t planned for retirement panic when they think they will have to start from scratch. Actually this is not true,” says Swapnil Pawar, co-director of PARK Financial Advisors.
J.S. Gogia (left), 63 Chandigarh
At 53, he realised that he had dipped too deep into his existing savings and had to create a retirement nest egg from very little.
“I worked for a year after retirement. I don’t need to work now and plan to write and do social service.”
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Myth: I’m starting late, so I cannot afford to invest in equities, as the risk is high.
Fact: If you want your investments to grow at a high rate, you will have to have some exposure to equities. If you have 10 years or so to retire, you can afford some degree of risk.
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Amar Pandit, Financial Planner
“When you have only a few years for your money to grow, you can’t forego security for acceleration.”
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Pawar suggests that late starters make the most of their existing assets—PF contributions, long-forgotten equity investments, and fixed deposits. Use everything that hasn’t already been allotted to other goals, because that’s going to be one of the few ways in which you can create the lakhs (or even crores) that you need to maintain your working lifestyle in retirement. The other advantage you have in starting late is that your pay-cheque will be higher, and your expenses should have stabilised. Home and car loans should most likely be things of the past; if not, Pawar suggests paying up as soon as possible. With zero liabilities, you have a higher investible surplus and no burden on your future corpus.
But before you become complacent about the late start, remember that it does not mean you have any less to run. The corpus requirement remains almost the same as it was 20 years ago. Pawar assumes 3% higher inflation and 2% lesser returns for clients over 50 compared with their younger counterparts. “The logic is simple: be safe. At this age, there is no scope for course correction,” he says.
Now comes the tricky part. Where can you invest? Because you are aiming for fast growth, your obvious choice will be equities. “The problem is that you cannot forego security for acceleration,” says financial planner Amar Pandit. But zero or very little equity exposure is also a strict no-no. You will have to try and maintain a fine balance between risk and returns.
To do so, both Pawar and Pandit suggest a mix of equities and debt in the portfolio. Their proportion is a function of your risk appetite. “The traditional asset allocation doesn’t make sense for late starters,” says Pandit. If you have 10-12 years before you retire and no significant liabilities, you can afford a 100% equity exposure. But if you are heavily mortgaged, or have responsibilities extending into your retirement years, then play safe.
“Equity-linked fixed maturity plans (FMPs) are appropriate financial products at this age. They protect your capital and allow you to enjoy the upside of a rise in equity markets,” says Pawar. Pandit recommends buying equity diversified funds that invest in large-cap stocks and blue-chip companies as he sees these as safe bets within equities. Both planners do not recommend instruments with long lock-in periods, as liquidity is a priority. “I wouldn’t recommend a Ulip for retirement planning now,” says Pawar.
HOW TO CATCH UP Here’s how you can make up for lost time if you’ve woken up late to retirement planning Target retirement corpus: Rs 2 crore
Monthly investment: Rs 40,000 *
Corpus at the age of 60: Rs 97.6 lakh You fall short by: Rs 1.02 crore Postpone or cancel big-ticket spends to add Rs 15,000-50,000 a year to your corpus Postpone retirement for 5 years and your retirement nest egg at 65 will be Rs 21,989,037
*Based on income of Rs 1 lakh a month, and own home |
n the last three years of your career, experts suggest that you switch a part of equity investments to debt, which will generate enough income to meet your regular monthly expenses. “Post office monthly income schemes, fixed deposits and debt FMPs are good bets. You could create a ladder of their maturity periods according to the cash flow you want,” says Pandit.
What if you’ve done all of this, but find that you’re still falling short of your target corpus? One option is to bolster your postretirement income by continuing to work; either take up a part-time job that makes use of your existing professional and on-thejob skills or consider making your hobby a money-making proposition. Yadav was a general manager in a steel MNC. At 61, he has taken up the post of vice-president in a cements company to increase his income and keep himself occupied. “I intend to work for the next five years,” he says.
“This strategy has twin benefits. You are able to invest more and your corpus has to sustain fewer years of no income,” says Pawar. Or, like Gogia, you could also rent out your house. “I took a loan of Rs 10 lakh for renovation. Now, rental income contributes about 48% of my total income of Rs 60,000 a month,” he says. Other options include downsizing goals, cutting back expenses, etc (see How to catch up). The one nonnegotiable instrument should be health insurance. If you don’t have adequate insurance by the time you turn 50, you’ll end up paying absurdly high premiums. Just make sure you read the fine print before you buy.
If you can’t get together a decent corpus, you might want to postpone your retirement by a few years. While that might not be an attractive thought, it’s bound to pay off in the long run, as you enjoy your sunset years without financial worries.
ARE YOU ON TRACK? What all you need to invest in to ensure that you have a nest egg that will allow you to maintain a comfortable lifestyle after retirement Insurance
If you do not have adequate medical insurance, make sure to set aside enough to pay high premiums. Investment
Maintain a balance between equity and debt depending on how long you have till you retire (see Better Late...). Real Estate
It’s better to start without any debt, so if you have not paid off your home loan yet, prepay it if you can afford to.
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BETTER LATE...
Where and what to invest in if you have less than 15 years to go to retirement
High risk• With 5 years left to retire, invest 30% of your portfolio in equity and the rest in income and debt funds. • With 6-10 years to retire, invest 40% in equity, the rest in balanced and debt funds. • With 15 years to retire, invest entirely in equity through index funds, diversified equity funds and low-cost Ulips with aggressive risk profiles. The high-risk category covers those over 50, with a single or no dependant, some corpus already built, no loans, most other goals fulfilled, adequate health and life insurance Low risk • With 5 years to retire, invest 100% of your portfolio in debt through fixed maturity plans, liquid-plus funds and fixed deposits. • With less than 10 years to retire, invest 65% in debt, the rest in equity. Aim for at least one equity and two debt funds. • With 15 years to retire, invest 70% in equity and the rest in debt through balanced funds, two equity funds, one debt fund or PPF, low-cost Ulip with moderate risk profile. The low-risk category covers those over 50, with more than one dependant, goals to achieve, and inadequate insurance cover
Based on inputs from Swapnil Pawar of PARK Advisors |
RETIREMENT CHECKLIST
If you start retirement planning in your 50s, there’s ver y little room for error. So ensure that:
• Loans don’t extend into your retirement years. • Equity investments are moderated. • You have adequate health insurance (about Rs 5 lakh). • Investments for unfulfilled goals like children’s marriage are on track. |
