A stage of life always considered too far into the future to be planned for, but it can be quite intimidating when you realise the amount of money you require to sail smoothly through the retired phase of your life.
Retirement as i define is the day from which you stop working for money, you can continue into any profession, business or service but the work is not motivated by the primary requirement for you to fun your family. so continuing to work for a cause or for a liking is not considered work and doing it irrespective of the monetary benefits is the time when retirement has started.
Retired phase of life makes up for almost 1/3rd part of most people's lives. This figure when revealed takes many people by surprise as they believe that like their ancestors and forefathers, their children will take on the responsibility of providing for the their living expenses. it is widely believed that once they are into retirement their expenses will drop down dramatically and the little unplanned savings which they have will suffice their every need. One aspect that is completely forgotten is the demon of inflation. This demon can have treacherous effect on the real value of money that has been saved over the years. Thr belief that everything is left to the almighty and they will get no hardships can really have them falling flat on their face. They completely sideline the fact that they will have illnesses as they age, they will have social obligations to cater to, they will have some hobbies in mind which they would like to pursue, and that they will not come cheap. Getting complaisant about their financial position based upon the mere adulation of their friends and colleagues whose base is a misconceived assumption about your financial situation can prove fatal in those critical later years of life.
Retirement should be Planned
Sit with your planner, and get a planner who has only your interests in mind. Discuss your current lifestyle, argue upon the inflation rates coupled with other assumptions like the growth rates of various asset classes, an appropriate asset allocation based upon your risk profile after a distilled understanding of the risk factors and the meaning of each risk factor
Setting the ground rules correct lay the plinth by discussing your expenses under various heads. Each head is important as it would grow at its specific inflation rate. An input of expense start and end year should be given prime importance so that precise expense calculations for the future years can be made.There could be certain expenses like medical expenses, socialising that can grow at different inflation rates , those need to be incorporated separately.
After this, deciding upon the retirement age is critical, there are two aspects to this. A desired retirement age, this is the age when you wish and aim to retire and an extendable retirement age which is the age upto which you can stretch your retirement if the plan cannot be made at the desired age. Also the most important input is the life expectancy. This is generally based upon the history of the family's life expectancy along with the person's health situation.
A buffer amount is needed
As the retirement plan has many assumed inputs used, there will be times that the actual situation can be different than what was assumed. Inflation can vary, so can the returns of each asset class over the planning period and the probability of humans to live longer than the horizon planned for forces a big threat to the sincerity of the plan. Though it is good to live more and backed with today's advancement in science and medical fields it is quite possible too. But it might not be that good for the plan. To protect against this risk called 'Longevity Risk' in which you might live longer than what is planned for you should have a buffer amount in your plan. This amount should at any point in time be able to suffice the next 5 years expenses adjusted for inflation.
Pay fees to your Planner
To get the best interests in mind you should pay a fee that is decided upon before entering the contract. This wil make him more accountable to you and force him to serve you better.
Plan your post Retirement Activities
In the time after retirement, though you have the finances planned, it is equally important to have your time planned too. This means engaging in activities that will keep you busy and your mind away from ill thinking. it can be either a hobby that you like, or following a sport that you adore, or even a cause that you stand strongly for. Knowing this will ensure that you are occupied towards productive thinking and action post retirement. Your expenses after retirement will be heavily based upon the type of activity chosen.
Plan Early, Plan Smart
If there are two people, Mr. A an Mr. B, both are currently 25 years old and have their current expenses at Rs. 50000/- p.m. and both plan to retire at 60. Mr. A starts planning for this from age 25 and Mr. B starts planning for retirement at age 40. With identical situation and risk profile assuming an inflation rate of 7% and a weighted average post tax return on investments of 12% and a life expectancy of 85 years Mr. A will only have to invest Rs. 18288/- p.m. and Mr. B will have to invest 109567/- p.m. which is almost 6 times Mr. A's required savings
So when it comes to retirement be planned, be ready and this will ensure that you can rest carefree in you hammock on the serene spot of your dreams
Happy planning
Think before you act as
'It's all in the Mind'
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