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Yogi Zone

Useful articles for your finance management by our team of experts

Planning for Retirement

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You’re only young once and the thought of Retirement Planning seems so far away that it is hard to take it seriously. What people don’t realize is the advantages of planning early. InvestmentYogi takes a look at Retirement Corpus’ and why you should plan early.

Getting rid of the “One Day” Syndrome

Everyone has plans on setting up Retirement Plans “one day” but having just graduated from college and starting up with their first job, most young adults do not give retirement a second thought. The money they get each pay cheque is used for gifts, gadgets, partying with friends and monthly expenses, if not living with family. It is hard to think of yourself as no longer working, because you just started in the work force. Let’s face it, the reality is retirement is a long time away but what most people don’t realize is Retirement Planning and actual retirement are two separate things.

Don’t bank your rupees in trust alone

Statistics show that most people ‘trust’ they will be taken care of by some sort of luck, be it their children, bank savings, the hand of God or just the fact that things “always work out”. Facts show that the majority of elderly are living 15-20 years beyond retirement and are outliving their savings by a staggering amount. Most young people think about putting a Retirement Plan into place, but probably only 1 out of 100 Indians take the action and do it!

Money myths regarding retirement

A lot of people think that your financial requirements will decrease as you get older. That is a myth, ask any older couple/individual and they will tell you the numerous costs they could not have foreseen. Also, with the breakdown of the joint family in India, the young and old cannot count on that system to see them through troubles or old age. Higher life expectancy adds to the cost of a retired life. If you have children/grandchildren living abroad, account for that expense as well.

One of the biggest costs as you get older is medical. You are young and healthy now and even as you get into your 20’s and 30’s the idea of medical cost consist of an occasional visit to the doctor in regards to a virus or flu. As you get older, your medical needs are greater, resulting in higher insurance premiums and rising doctor bills.

With a lack of a social security system in India it is imperative that you put in place a strong Retirement Corpus at an early age.

Retire rich at an early age

Most people dream of retiring rich at an early age, travelling the world and living in ‘style’. If that is your dream, you need to get started.

How much do you need to retire? A general rule of thumb is that you will need 70-80% of your last working month as normal living cost. To determine how much that will be you can use a Retirement Corpus calculator.

Regardless of age, sex or circumstances, the rules of the Retirement Planning remain the same; when you stop working for your money, your money should start working for you. By building a retirement corpus at an early age you get the benefits of both forces – time and compounding. Not to mention the advantage of tax-deferred growth.

Building a nest egg

As I mentioned before, India does not have any form of social security, what it does have is a provident fund. By default, being an employee forces you to contribute towards an

Employee provident fund

(EPF), unfortunately, the provident fund is not going to be sufficient for most individuals. The key to building a nest egg is to focus on repaying all your debts and to build assets.

Some ideal assets to include in your Retirement Portfolio is equity, real estate and gold. While investing at an early age, consider products with longer investment horizons, as they can give you huge capital gains and act as a forced savings.

Insurance: It should include both Life and Health Policies.Health insurance should be adequate to cover illnesses and long-term care, should you require assistance in later years.

The portfolio should be reviewed and adjustments made if needed, every 18 months or so.

As with all financial plans, your retirement needs will be personal to your requirements and wants. It is recommended that you use a financial planner. There are many financial internet companies that provide free online financial plans.

The buck stops here…

Who gets impacted by a lack of financial planning are the people you love most. So, pay yourself first by having money deducted automatically from your paycheque, what you don’t see, you won’t spend. Even if you can only afford investing a small amount each month; the rewards will be big later. Retirement Planning is a lifelong process and can have rich rewards if planned for early!

  • RUDRANIL GHOSH

    @Suresh da…..the article is quite informative.u r absolutely right.At the time of retirement epf and pension will not be enough.the only way is to live life as simply as possible just as our grandparents use to do plus follow the principle of “cut ur clothe according to ur coat”.

    • Av Suresh

      You are absolutely right, Rudranil.

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