Nikhil Walavalkar Moneycontrol News
A recent survey by a global banking major made it clear that only a third of Indians save for retirement. If you are not one of them, it is high time you save for your golden years. Some of you may see it as a faraway situation and some may not know the ‘inflated numbers’ you will see as you move closer to the D-day.
If you still do not think you should be saving for retirement, here is a funny question you should answer. “When do you spend more - on a week day or on the weekend? More likely you spend more on weekends. After you retire you will be enjoying weekends all through the week and you will need more money,” says Abhishek Gupta, founder and chief financial planner, Moat Wealth Advisors.
Keep aside the fun, the main point it drives home is you need money when you retire. You will live at least 20 years post your retirement.
So let us go to the factors that you should keep a track of while saving for your retirement.
Time on hand to plan
You know your age and you know your age of retirement. That gives you the time on hand to prepare for golden years. For millennials, retiring early is a dream. But that leaves less time on hand to save for your retired life.
“If your retired life exceeds your working life, you have to save much more than an average person who works for more number of years than he spends in retirement,” points out Gupta.
If you know how much time you have on hand you can plan it better. You must be aware of it, but it is worth repeating. More time you have on hand, better off you will be in terms of ease of saving.
For example, if one has to save Rs 10 crore over 30 years at 12% rate of interest, then he is expected to invest Rs 28600 per month. But what if he starts five years after? He has to invest Rs 53200 per month to reach the same goal at the same rate of interest. That is increase in monthly investments arises out of failure to use magic of compounding at one’s advantage.
Inflation
This is the biggest enemy of the investor. If a household needs Rs 50,000 per month to meet its expenses, it will need Rs 2.81 lakh to enjoy the same level of lifestyle 30 years from now if the inflation stands at 6%.
All your future financial needs must be expressed only after accounting for inflation. Your monthly expenses, healthcare funds and vacationing and other expenses must be adjusted inflation. These inflated numbers will decide your targeted corpus for retirement.
Risk profile
Many a times individuals prefer to imitate others. While planning for your retirement avoid such quick fixes recommended by friends and relatives. “Understand your risk profile and define your asset allocation in the light of your risk taking capacity,” says Anil Rego, founder and CEO of Right Horizons.
Since you are investing for long term, you should consider investing sizeable chunk of your savings into shares and equity mutual funds that invest in shares. As you move closer to your financial goals, you should be investing less in volatile equities and increase exposure to relatively safer bonds.
Wholistic financial plan including your retirement plan
This is often ignored by individuals who save but do not have clearly defined financial goals. “Nowadays many get married after 30 and opt for kids when they are well past 35. It means that their kids’ higher education and marriage may take place when they are nearing retirement or already retired. If you do not account for these needs well in advance, your retirement corpus may get used towards these goals,” says Gupta.
Each one of us have multiple financial goals in his lifetime. Some of these goals get inflated over a period of time. For example, one may have a dream of buying one BHK flat in a metro city. But when one accumulates the amount for down payments, he sees a better option – 2BHK flat. If there is no provision for this inflated goal, there is a tendency to draw from the retirement money.
Frequent raids on your retirement kitty to fulfil your other financial needs, may destroy your retirement dreams. “Write down all your financial goals including retirement in money terms. Prepare a plan for each one of them and stick to them. Otherwise you will end up fulfilling other goals at the cost of retirement as retirement generally comes at the end on priority list for many,” says Rego.
Don’t kill the home loan at the cost of everything else
“Indians want to stay in ‘own house’. That makes them prepay and foreclose their home loans in a hurry,” observes Sukanya Kumar, founder and CEO of RetailLending.com. But this can divert resources required for retirement planning. Never close your home loan at the cost of other financial goals, she adds. Factoring into account the tax benefits, home loans cost are generally lower than the rate of returns generated on the long term investments.
Health insurance and health fund
Many retirement plans underestimate the need pertaining to health. As you age, your cash outflow on healthcare related matters go up. For hospitalisation you need adequate health insurance and for expenses incurred on regular medicines and conditions which are not covered by health insurance, you need to build a healthcare fund. “Always have both of these in your retirement plan. The quantum depends on the extent of your needs,” says Rego. More about healthcare fund can be read here.
Do not procrastinate
Best of the plans fail due to want of implementation. If you want to enjoy your golden years do not postpone saving for it. Start now.
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