A road map to retirement

Allocating resources in a good mix of growth and debt investments is essential. The risk profile of the portfolio should slowly go down as one gets closer to retirement.

Suresh Sadagopan | Print Edition: October 30, 2008

Suresh Sadagopan
Suresh Sadagopan, Certified financial planner, Mumbai

Most of the people I talk to about retirement generally end up yawning. They look at it as something that will fall into place, over time. Sometimes it appears that discussing retirement is about as appealing as watching paint peel.

However, there are those who realise the importance of retirement planning, and many who put away whatever they can for the future. But will that be enough? That is something they would all like the answer to—and they hope it will be in the affirmative. Most investors again do not follow any premeditated strategy here.

Some may put their money in NSCs and the PPF and some in mutual funds and equities. Whatever they invest in, however, they generally do not have a clear idea about where they are headed. Often, investors act on what they hear and read. That’s when they make mistakes, and this affects their retirement funds. What can they do now to avoid such mistakes?

For the young, swinging 20-somethings, retirement is not a consideration. That’s understandable, as they would have just started working. They want to enjoy the freedom and goodies that money affords them. But if they invest even Rs 2,000 every month in the PPF towards their future, they will have over Rs 27 lakh in their 50s. That’s not a bad return for something many young people spend in a weekend. By the time they turn 30, however, they get more responsible. Expenses shoot up, but so does income in most cases.

This is also when retirement seems more real. In their 30s, people know that their families will grow, that children will have to be supported, and expenses mount. They also realise that the day will come when they no longer earn a regular income. But most people still believe that there’s plenty of time left and that their money can be better spent on things other than saving for retirement. But investing regularly in MFs or equities at this stage can help later.

Most people peak in their 40s, at least career-wise. Most of their needs have been met—many have bought their homes, cars… However, they might still be paying off loans. Education and other expenses pertaining to children might also be high. But at this stage, most have also started thinking of retirement. Property investment is a good idea as that could yield steady income in future.

By the time people hit their 50s, they are making retirement plans. Their nest egg is still being built, and they hope like hell that it will suffice. Many at this stage are furiously putting away some money to give that final push to their retirement corpus. Some of them get ambitious now and put money in equities and MFs, which should be done with caution, as there aren’t too many years to recoup possible losses. Ideally, they need to allocate their resources to low-risk securities that give decent returns. They need to keep a portion of their corpus in growth instruments too, as for inflation is nibbling away at the value of money.

People should start saving early for retirement. The power of compounding works well only over time. Allocating resources in a good mix of growth and debt investments is essential.

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