The Afterwork Life — Plan Your Retirement

Remember the time when you first discovered a post-it? The time when you realized that you could actually have a productive day by writing down a list of things to do? The moment you realized that you need to get more organized, consistent or plan ahead in life? If you have, you know it’s been well worth the effort and if you haven’t, you know exactly why you need to.

Almost every major event in life warrants a process of planning. Whether it’s about moving cities and countries or quitting one’s job to start a venture, getting married or retiring to a farmhouse, everything needs to be mapped out and arranged for. That is how one works towards or takes control of the new event; that is how one adapts with ease. Not planning can make change complex and daunting. Retirement is not just a financial event but also a personal one. You need to plan your retirement just like any other event in your life.

The duality and dynamics of the phase makes it all the more important to be strategized for. But often, retirement doesn’t count as an important financial goal. It’s ignored, simply because it’s many years away; because there are many other ‘bigger’ intermediate goals to achieve – buy a car, build a house, marry, travel the world, have kids and then buy another car! The sunset years are but left in the back seat!

Most financial advisors will tell you that retirement planning has to start when you get your first job. There’s a lot more to it than just putting money away in the banks. There are two important aspects to factor in one’s retirement planning:

• Inflation – The steady rise in cost of living is known to derail many a dream. Unless accounted for, a retirement plan is incomplete. The money that is required for a good desired life today may be insufficient in the future. For example: If you are currently spending INR 50,000 (per month) for living expenses during your mid 30s, assuming an inflation of 5% to 6%, you will need INR 2.25 lakhs to INR 3.0 lakhs (a month) during your retirement.
• Contingency – Secondly, the older you get the more important it is to account for healthcare plans and emergencies. Besides, with life expectancy on the rise, the period of retirement gets longer, making it necessary to draw up an extended plan.

With this at the backset, you can now tackle your retirement strategy in detail, in a more comprehensive way:

• Be an early bird – When one starts saving early, the corpus is more likely to get bigger. Debt-based investments such as Provident Fund or Fixed Deposits or Bonds have the power of compounding the interest. When young, one can withstand more risks and invest in the stock market and Mutual Funds.
• Get Medical insurance – Aside living expenses, most retirees need to shell out a significant amount for health care. Is there a way to minimize the financial strain? Yes, by getting health insurance early on, you could reduce the premium costs for policies. This also ensures that there is no waiting period for the pre-existing conditions clause. Many no-claim years help reduce the policy premium significantly. Look for a policy that covers you till (at least) 75 years.
• Leverage on real estate – Retirement means different things to different people. Whether it’s about living in the Bahamas or in the Indian countryside, one needs a roof over the head. Without an income, it is stressful to pay rent. Investing in real estate during one’s working years ensures this is taken care of. It is ideal to first invest in real estate to cover stay expenses and then slowly extend to earn a rental income as well. In worst case scenarios, you could reverse mortgage your house during your sunset years for a steady income.
• No dip – With home loans, education loans, children’s education expenses and weddings occupying one’s mind in the 40s and 50s it’s easy to want to dip in your retirement funds. But a retirement saving plan is like a ‘Do not open till (t)old’ package. Strictly stay away from touching your retirement corpus during your working years.
• Go debt-free – As you advance towards retirement, you need to decrease exposure to financial risks. Your financial plans are on track when you aim to close all your debts before you touch 55.
• Build your retirement corpus – Your nest egg should be at least 20 times your annual expenditure at age 55 – 60. Work towards achieving that by investing in a host of savings schemes. In India, traditional retirement planning includes investing in Employee Provident Fund (EPF) and Public Provident Fund (PPF). But the New Pension Scheme (NPS) touted as an alternative to the EPF is getting a lot more attention lately.
• Earn after retirement – While one retires before the age of 60, it is still possible to engage in work after. Consulting assignments are a great way to keep you mildly-busy while adding to your funds. Investment schemes like Senior Citizen Savings Scheme and Post Office Monthly Income Schemes are a reliable way to earn interest.

If you haven’t started to plan for retirement as yet, start today.