Conventional images of retired people have them pruning roses, playing golf, sipping tea or strolling by the seaside. We would all like to be in their place, wouldn’t we? Sadly, we might not be able to indulge in these activities—unless we have planned wisely for the post-career years. “The most important part of retirement planning is knowing when you can retire and when you can’t,” says Kapil Mehta, CEO, DLF Pramerica Life Insurance. To know when you can retire, you’ll need to find out when you will have enough to live on, without being compelled to return to income-generating activities when you are over 60.

That’s the first step to retirement planning. Each person should decide on an adequate retirement income and then work towards creating a corpus that can provide this income. While calculating the ideal retirement income, consider when you wish to retire, how long the corpus should last and your lifestyle in retirement. Remember to factor in the rising prices and the rate of inflation, as well as increased interest rates.

A rule of thumb is to save 15% of your pay for retirement regularly and over a long period of time. However, if you start later, you will need to save a higher percentage of pay (see How Much to Save). Which is why someone like Anirban Bora should, ideally, not wait much longer. When asked about his retirement plans, the 28-year-old Kolkata-based engineer laughs it off. “You must be kidding. Who is thinking of retirement now? It is too far away,” he says.

Related Stories



>Are you ready to retire?
>Mistakes to avoid
>Living it up in retirement
>Need to jazz up the NPS
>Is it worth the experiment?
>Insure your retirement
>Evaluating the options

This mindset is not exclusive to Bora. His peers, largely the yuppies (young upwardly mobile professionals), arpies (asset rich but penny poor), DINKS (double income, no kids), and any other acronym you can think of, are convinced that it’s way too soon to start planning for a far-off date with the rocking chair. This trend seems universal going by the results of the latest quarterly Nielsen Consumer Confidence survey, which covered 14,029 consumers in Europe, Asia and North America. The survey found that nearly six out of 10 Indians put their spare cash in savings, but a mere 4% drop it in the retirement kitty. Apparently, spending on new technology products (33%) and outdoor entertainment (22%) is considered more worthwhile.

Hardcore spendthrifts will tell you that increased consumer spending is good for the economy. What they fail to realise is that profligate spending is generally at the cost of their retirement corpus. With increased life expectancies, thanks to advances in healthcare and improved lifestyles, this corpus has to last a far longer period than ever before. This is why experts reiterate the importance of planning early for retirement.

After the decision on life insurance, retirement planning is the single most important financial decision that should be taken by an individual, says experts. This is because the government provides little by way of social security. It’s not a problem unique to India. Across the world, governments are moving away from providing guaranteed retirement benefits and several are offering market-linked returns.

What all this means is that your future, quite literally, is in your hands. If you anticipate a comfortable retired life, start saving now, no matter what your age. If you’re earning, you should be putting something away for those sunset years. If you’re like Bora, secure in the belief that retirement is far away and you have plenty of time to start thinking of planning for it, here’s some news for you. Starting early lets you save more as you have a longer working life ahead of you. It also allows the power of compounding to work in your favour.

“It’s a lifelong process, not something that you plan for when you are nearing it,” says Rishi Nathany, Kolkata-based financial planner and director, Touchstone Wealth Planners. Like Sudheer Hundi, you too can learn from other people’s mistakes. “I started thinking of retirement when I saw some extended family members worry about managing life in retirement,” says the 34-year-old who works for a software company in Bengaluru.

The other advantage of starting early is that it gives you time to correct any flaws in your financial plan. “The advent of nuclear families, rising healthcare costs, and fluctuating interest rates and stock market returns can make some of the best-laid retirement plans go awry,” says Vishal Gupta, director marketing, Aviva Life Insurance. Starting to save in your 20s or early 30s will also help you rework your retirement plan as you go. Begin building the nest egg later and you might end up having to put off retirement by some years if an unexpected problem crops up.

No matter when you decide to start, make sure that your corpus has two essential components: liquidity and growth. While liquidity will give you regular income and cover contingencies, growth will ensure that your corpus takes care of future expenses and protects your standard of living. “Unlike the working years, when you have a steady source of income, the retirement years will see you creating a mix of regular income streams to manage essential expenses through regular cash flows,” says Rohit Sarin, co-founder and partner, Client Associates. You might also need lump-sum amounts to meet specific capital requirements, say for home repairs or travelling abroad to visit your children.

The most important aspect of a retirement plan is that it should last you a lifetime. Just putting together a large corpus is not enough. You will also need to factor in the returns you will earn on this corpus, the prevailing rate of inflation and how much you withdraw from the savings pool. Obviously, some of these factors cannot be quantified or controlled. But others can be managed well. Here’s how you can do it.

Own a home
Any planner or adviser will tell you that for a retirement plan to work, you will need adequate medical insurance, as well as a home. Both provide security in your old age. More importantly, a house could also be a potential source of income in case of problems with your retirement income. Bengalurubased A.S. Mahadevan, 52, plans to retire in four years and decided to buy a house to augment his income stream in retirement. He lives with his parents and knows that he will always have a roof over his head. He took a home loan to buy a house, rented it out and uses the rental income to pay the EMIs.

Dr. R. Muralidharan, a 55-yearold Delhi-based scientist, has followed a similar strategy. “Both my children are in the US pursuing higher studies and that takes care of their careers. I am soon going to move into a bigger home which will be sufficient for me to retire in with my parents,” he says.

To buy the bigger house, Muralidharan sold his small apartment and took a home loan to make up the shortfall. Some planners believe that it is risky to take a home loan at this age, but Muralidharan is convinced that his gamble will pay off. The bigger house is more in line with the lifestyle he fancies after retirement, and the tax benefit he’s getting on the home loan is icing on the cake.

Mahadevan and Muralidharan are good examples to follow, but Rathnesh Rao has reason to worry. The 50-year-old Hyderabad resident says, “I had other financial commitments earlier in life and am yet to find a house that I can afford and retire in.” Worrying, however, won’t do him any good. It’s never too late to start, but you have to be aware of the handicap you’ll start with. “In your 50s, you can’t hope for stupendous growth, and if you have been risk-averse all these years, you are unlikely to be riskfriendly now,” says Sarin. In such cases, you have to either rescale your financial goals, including compromising on the standard of living you hoped to maintain, or look at a second career to try and build the nest egg.

Insure your health
We have said it often enough, and repeat it now—health insurance is essential during your retirement. All of us can’t be as lucky as Muralidharan and Mahadevan, who are both eligible for healthcare under the central government health scheme. This means we should look for adequate medical cover. Like most aspects related to financial planning, it helps if you get this early on. That is when insurance companies are willing to give you medical cover with few questions asked, and your premium payments are also manageable. Leave it for later, and you might not be able to get adequate cover. Moreover, you’ll have to shell out a fortune on premium.

Investment strategy
A standard retirement plan consists of two parts—wealth accumulation and withdrawal. In the accumulation phase, ensure that you have a good mix of financial assets, be it debt or equity, and real assets like property, gold, collectibles, etc (see Options to Choose From). Those who are employed in companies that offer the provident fund facility, by default, have been saving for retirement. This is an assured return scheme and takes care of the debt component of your retirement planning corpus. “In your late 40s and 50s, consider choosing investments in debt instruments to get an asset allocation that will have adequate cushion to manage equity volatility,” says Zankhana Shah, Mumbaibased financial planner and founder, Money Care, a financial planning firm.

However, for wealth creation, one should consider equities as an option. “Once you have assessed your risk profile, you can invest heavily in equities and leave the debt portion to your provident fund contribution,” advises Shah. A mix of equities, equity mutual funds and equity-linked insurance products that can serve the purpose of wealth creation will fit the retirement planning stage. Of course, if you start saving early enough, you don’t have to depend on equities to cover your basic expenses after you retire.

All of this still leaves you with the element of surprise — the unexpected event that could demolish your carefully constructed plan. This is why it’s essential to create a flexible plan that can be reprioritised every time there’s a crisis. For instance, if you typically save 25% a month for retirement, but have to bankroll an unforeseen expenditure, you can cut back the nest egg contribution to say 5-10% for a few months and then scale up at the first opportunity. As Gaurav Mashruwala, Mumbai-based financial planner, says, “You don’t need a structured plan for retirement. Just make note that the investment is for retirement.” To the best of your ability, treat it as a savings shield, which you cannot touch no matter how pressing the cause.

Yet, there are several people you might know who have spent far more than anticipated on their children’s education or, perhaps, on an aged parent’s healthcare. “Events such as these might force you to draw from your retirement savings and look at growth investments late in life,” says B. Srinivasan, a Bengaluru-based financial planner. This is among the cardinal sins of financial planning (see Mistakes to Avoid).

The trick is to keep your goals separate. Yes, you need money for your child or your parent, but you can get this by simply not putting the money in your retirement fund for a few months. Financial planners suggest that if you do not have a specific fund or plan for a goal, it’s better to go slow on an existing plan than to wipe it out completely. “This way, you don’t touch your corpus for each of your financial goals,” says Srinivasan. Obviously, planning for retirement is more than just putting away a tiny sum in a pension plan. Start planning early, and plan smart. This is the only way you can save enough in your retirement fund to let you prune the roses in your sunset years, without a care.

CASE STUDIES

Sudheer Hundi, 34

Started planning: Recently

What got him started: He learnt from his family’s mistakes.

His retirement plan: Maximum contribution to PF, long-term mutual funds and insurance plans, SIPs and market-linked retirement plans.

"I would rather let the experts handle my portfolio. I have a basic plan and review its performance once a year."

R. Muralidharan, 55

Started planning: In his 40s

Smart idea: Purchasing a retirement home early on.

His retirement plan: Real estate, government pension and a home loan that provides tax breaks.

"I’ve taken a loan to buy a bigger house. At my age it’s considered risky, but it is better suited to the retirement lifestyle I want. "