Over two centuries ago, Benjamin Franklin said; nothing is certain except death and taxes. Well, for most people retirement comes as a close third. If that is the case, are we doing the right planning for our own retirement?
The exuberance of youth is such that when we are young, we feel invincible and yet by the time we get into our 40s and 50s we could imagine our own morality such is the tide of time. Similarly, when our incomes are low, we don’t bother about taxes but as we grow and our income rises, taxes become inevitable. Retirement is no different. The young generation think of it as something which is a lifetime away but to their surprise that is not the case. As we leap from our 30s to 40s to 50s, we suddenly see our old age and retirement staring us up close.
In many developed nations, retirement is not so much of a worry because of a strong social security system provided by the government. Unfortunately, in India we don’t have any such protection. We must plan for it ourselves. Even for people engaged in government jobs, the pension may not be enough to live a comfortable retired life.
Many times, even those who are aware about the challenges of retirement, do not want to address the issue and keep it in abeyance. Others think that it is a complex subject and therefore ignore it. Just as darkness doesn’t go away by closing our eyes but instead by lighting a bulb, retirement won’t go away by not thinking about it but by planning and saving for it as early as possible.
Let’s look at an example:
A 30-year-old person would need to save Rs.4.06 Crores for his retirement at age 60 considering his current monthly expenses of Rs.40,000/- per month which is expected to rise by 4% every year due to inflation. While this figure looks very high, it is quite achievable if he starts saving for this goal every month. A savings of Rs.28,000/- will most likely do the job. If keeping aside Rs.28,000/- is difficult currently, he can start with a smaller amount, say Rs.15,000/- per month and keep increasing this amount by 5% every year as his income grows over the years.
Now, let us see the implications of delaying retirement planning. The tables below suggest that if he delays his savings by just 5 years, he would then need to save Rs.44,000/- every month (instead of Rs.28,000/- now). The figure goes up to Rs.1,20,000/- per month if he ignores his retirement planning by 10 years. This clearly suggests that one should start as early as possible to take advantage of compounding.
A young individual has a lot to take care of, family, housing, children’s education, marriage expenses and various other aspirations. It may be difficult for him/her to think about a distant goal like retirement and prioritise it over other pressing needs. Well, if he/she understands the need for retirement planning and starts with even a modest amount, the issue of financing the cost of retirement won’t give sleepless nights.
For people who have delayed their retirement planning and expect to retire in the next 10-15 years, the best time to start saving is now. Identify how much you would need at the time of retirement and do a back calculation of the amount you will need to save every month/year to achieve the goal after considering current savings in place for this goal. Avoiding the inevitable is not the solution. Planning is.
Some basic pointers to take care: –
– Consider investing a part of your savings in equity related instrument if retirement is still some years away (more than 10 years).
– Take full advantage of tax savings instruments offered by government, like PPF, NPS, ELSS mutual funds, EPF, etc.
– Consider mutual funds as your core portfolio, both for accumulation phase as well as retirement years as it provides diversification, expert management, tax benefits and much more.
When you start saving for your retirement you will get a different kind of confidence and feel more financially secure. With life expectancy rising, your retirement years could be more than your working years. Having a solid plan in place will give you peace of mind to cruise through your retirement years with ease. Finally, when you plan your retirement, you do it for yourself and no one else. It is a gift of security you give yourself. So start planning today!
Contributed by Mr. Brijesh Dalmia, Founder of Dalmia Advisory Services Pvt. Ltd, an empaneled distribution partner of SBI Mutual Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.