In my opinion retirement planning is nothing but making adequate financial plans and adherence to the same with proper executions to secure your post retirement life without compromising with the pre-retirement standard of living.That is to maintain the same degree or standard of living after your sunset years.I don’t see retirement planning as a goal of life rather I would perceive it as the systematic approach which would sail through the working years and end up at the retirement.Also, this systematic approach would be corroborated by discipline and perseverance.An aggressive planning for investment or investment made in hurried way without thinking for other financial aspects can land a person no where.Therefore, a patient and disciplined approach of investment is the main key for retirement planning.
Misconceptions regarding investment:We, the Indians are educated enough but not to that extent to differentiate between “savings” and “investment.
Savings Vs Investment
Often, we confuse ourselves between these two aspects.Letting your money keeping idle in bank accounts can be termed as savings.On the other hand, letting your money grow and earning an income over inflation can be termed as investments.In our country with closely zero financial literacy,we keep on saying buying traditional insurance policies as an investment.We forget the core motive of buying an insurance policy and completely ignore the protection part.
Many of the traditional life insurance policies fail to deliver an inflation beating return and still we keep on saying this is our primary investment.Buying traditional life insurance policies ought to be perceived as taking insurance coverage against the life of the insured person in the event of unforeseen contingencies.On the contrary, keeping your money in various fixed or variable return providing instruments are called investments viz; putting money in Fixed Deposits,buying NSCs,Mutual funds etc.
Therefore, buying some costly traditional life insurance policies should not be construed as investment for sun set years.Rather, we must set up some needs or estimations in place keeping in mind the current income status,lifestyle,financial burden,qualifications,inflationary condition,period of retirement, obviously realistically.Then we must focus on the avenues where one should park his investments that can deliver an inflation beating return to reach the preconceived retirement kitty.Also, there are many other aspects to be kept in mind when planning for one’s retirement.This discussion has been kept very simple for everyone’s easy understanding.Thereafter we must ask ourselves whether still we are confused between savings and investments.Statistically ,it has been seen that most of the Indians after retirement failed to keep on their promises that they made to themselves only.
Deviation from the principle: While we have gone for retirement planning and setting aside some funds on monthly basis for years to build a desired corpus for post retirement , any other needs such as child’s education,marriage must not compulsorily be met up from this kitty.Otherwise ,you would jeopardize the main motive of retirement planning and we would be left at the same place where we were after before say 20 years ago.
Now, let me put forward this discussion with some financial information and data so that anyone can co-relate with his own life and this topic would leave a deep impression on their mind regarding retirement planning.
Example: Mr. Ganguly 35 years of age, is an employee of Pvt. company. He earns monthly an amount of ₹40,000/- and his monthly total expenditure is ₹30,000/-.Lets assume inflation @6% p.a.What would be his monthly expenditure after his retirement i.e. after 25 years if he wants to maintain same standard of living.₹1,000.00.
Therefore, you can see that a monthly expenditure of ₹30,000/- would become ₹1,33,949/- with just 6% inflation rate.This amount would have changed significantly to ₹1,71,763/-.Just imagine for 1% inflationary effect the expenditure is increasing by ₹37,814/-.As we can see that our monthly expenses is increasing by more than 5 folds.Would our income would increase in line with this.Now, the big question comes.Are you really prepared for this mammoth jump? The answer is may be not.So, only systematic & regular investment habit and regular review can land you near to your desired retirement corpus.Now, just have a look at the following table to understand the power of compounding.
4 investment options having investment period as 25 years and 12% CAGR.
Lastly to conclude, I would highly recommend everyone to start planning early for having a retirement plan in place so that at the sunset years you are not supposed to compromise with your life aspirations,which is not desirable at all.