One of my father’s friends from our neighborhood just got retired from his services. We all arranged a small get together & gave our best wishes for this new phase of his life!
When all were praising about how he has led his life with dignity, has fulfilled all his responsibilities & excelled in his career he seemed to be bit concerned about something.
Though I am much younger to him, I couldn’t stop myself & dared to ask him about it..
After two days, over a cup of tea, he started telling how blessed he is with two children, supportive family & a sense of accomplishment when they see their children settling in their own fields of careers.
But since their young age, they always prioritized their family & children, spent money to support them, gave less priority to long term investments, concentrated their investments in 1-2 instruments & when their income streams are stopped now, they are left with some bank FDs, retirement proceeds receivable from his employer & a rental income from one property.
Being retired from a private sector job, he is not entitled for any ‘fixed pension amount’. Though, their children will be able to support them financially, they are finding it burdensome as they have had lived with ‘dignity’ & ‘financial independence’ throughout their life!
They now want to generate a regular source of income for them, invest their small savings in right manner but they are worried for how long they can survive on these savings.
This is a reality of many of the households today!
The reason is one & common… they simply ignored their own ‘retirement planning’ while fulfilling other responsibilities…!
If you wish not to be one of them, then its high time to prioritize your retirement planning.
Why? .. please read through-
A myth that its still a long way to go-
When we are young, we are busy in ‘spending ‘our money on the things we have always wished to own like a vehicle, house etc, we then move towards fulfilling family responsibilities like children education, parent’s medical expenses.
Everyone thinks that ‘still we have many years to go’.. but years pass by quickly & one day we realize that its coming close..
Money works better for us when we remain invested for a long term. The per month investment required is also lesser than what we need to invest for a shorter period of time.
So, don’t ignore this fact & start investing early for you.
The following chart will explain what I mean to say..
| Particulars | Investment started at age 25 | Investment started at age 35 |
| No of years to retirement | 35 | 25 |
| Rate of return | 12 | 12 |
| Per month investment | -5000 | -5000 |
| Present Value of investment | 0 | 0 |
| Future value of investment | ₹ 3,21,54,797.36 | ₹ 93,94,233.13 |
In the above chart, the age of retirement is considered as 60. Rate of return is assumed as 12% & per month amount of investment as Rs 5,000.
You will easily notice that, 10 years difference in the period of investment can differ the future value of your investment by 2 Crs & we can-not ignore this difference!!
Volatile nature of employment:
Today, majority of the population work in private sector or they run their own businesses or profession.
Those who are in government sector, have retirement benefits with terms & conditions.
The nature of our income sources is volatile. With change in lifestyle, we tend to buy things by taking loans or by using credit cards. This increases our liabilities too.
On the other hand, inflation also increases rapidly. This many a times created imbalance in our earnings & spendings.
We thus need to create a balance.
Longevity of life:
General average life expectancy of the Indian is about 69.5 years for male & 72 years for a female.
It’s been observed that, women live longer than men. Even if we consider the above, a person needs to live for about 12-15 years post retirement with ‘financial independence’.
Advances in medical treatments, increased expertise in medical science help people survive even longer.
Though the pandemic period was an exception, this is a general scenario.
If we consider the above, then a person needs to invest in right manner for a long term so that he can financially support him & spouse for atleast 10-15 years post retirement. If you think that its ‘only’ 10-1 years, then beaware.. they turn out to be pretty longer than they seem.
Rate of returns can go lower:
When someone receives a ‘retirement corpus’, a person tends to invest it in ‘safe’ instrument which can provide him fixed income.
Though it is right on this part, two things he needs to take into a/c. One is , ‘rate of interest’ on these instruments are volatile & can give low returns. Other thing is ‘inflation’ keep on rising where such rate of interests can find it difficult to beat.
So, if you are relying on such instruments for your post retirement income source, then please think.
Nuclear Families:
We Indians have always been known for our giant joint families but the scenario is quite changed now. We see nuclear families in majority in our society today.
Some of the reasons are migration in search of careers, shifting for the purpose of bigger space, & so on.
Even though we have our family which is well connected to you, children who are able to support us financially, we will still face problem with regards to finding a full time help for house, managing household, travelling etc.
If we end up shifting in old age home, then also funding it regularly for the stay there is quite a task.
Too much concentration in ‘favorite’ assets & instruments:
Some people acknowledge the above facts & try to create assets or set base or investments with an eye on their post retirement life.
Many end up ‘repeating’ their investments & assets where they put their hard-earned money.
Due to this, many accumulate too many ‘real estate properties’ which they have bought with expectation to earn rental income, some accumulate too much ‘gold’ with a purpose to hedge in case of emergency or pass it on as a heritage to next generation, many pile up their FD investments with aim to earn ‘fixed rate of return’ post retirement.
But, even if we retire from our services, things like market performance, inflation, lifestyle keep on changing / increasing.
These 2-3 asset classes or instruments do not provide what we really require & need post retirement.
We all get busy easily with our daily routine, careers, family responsibilities & things that life throw at us! When we start moving towards ‘evening of our life’, we should be able to enjoy ‘the colors of the evening that it shows when the sun sets’!
So, whatever your age may be today, if you are earning even small , start planning for your retirement.
How? We will see in Part 2..!
-Priyadarshini Mulye
CFPCM, SEBI RIA, REG NO INA 000011796
ARTHA FinPlan