How to plan your future in stages for an easy retirement

As you are young,your risk appetite should be aggressive. You could recover more easily from the blows. Even an investment of R1,000 per month over 30 years at an estimated return of 12% will give you a corpus of over R38.5 lakh on an overall investment of R3.60 lakh. That is more than 10 times the investment amount. And each one of you can at least start implementing this immediately.

An investor should consider a well-diversified large-cap equity mutual fund,which is giving consistent returns. Here,the idea is to start inculcating the investment habit,without getting too much into the process. As you set aside a sum and time for the future,the power of compounding will work and you will get good returns over a longer period.

Young & married (30-40 yrs)

At this stage,creating a retirement corpus is the last priority for most. Money is spent on vacation,purchasing a house and car. Except for the mandatory Employees’ Provident Fund deductions,you typically refrain from adding more,at least in the initial years. With a majority of the Indian youth working in the private sector,and social security system being next to zero,having sufficient funds post your earning period is paramount. In this period again,set aside 2-5% of your net salary for the retirement corpus. Here again,one must look at a long-term investment horizon with an overweight on equity.

Married & with family (40-50 years)

With investing for retirement (albeit in a small manner) along with your other goals,this is the time when you should start looking deeply into the processes. You now have a hang of the monthly expenditures,future cash outflows for the children’s education and marriage and other goals. By this time,a substantial sum of money would have accumulated in your provident fund account,provided you had never withdrawn the money.

At this stage,note your current monthly expenditure after deducting expenses like rent/school fees/children education. Determine your and spouse’s life expectancy — take your spouse’s life expectancy as the benchmark,as typically,women outlive men. Determine the inflation rate and expected rate of return based on your risk appetite. After looking into all these factors,plan your asset allocation in debt,equity,gold and real estate.

Married & with family (50 years & above)

Responsibilities are maximum in this period. Children would be in the final stages of education and also in the marriageable age. The wants are unlimited. Again,since you would have bought a house or a second house,you can take comfort in that. In addition to the above,the corpus in your PF account should help in the final planning. Having an overweight to debt instruments,without ignoring the equity part needs to be adhered to. At this stage,a common strategy for retirement planning is not advisable. Customised solutions based on your financial needs is highly recommended.

Start small if you do not have the ability to put in larger sums. Ideally,one should save about 10% of net earnings very month. The power of compounding will ensure that the initial sums will give you the leverage for growth. Enjoy life,but do not forget to create a retirement corpus,the day you are employed.

Slow & Steady

* As you are young,your risk appetite should be aggressive. You should consider a well-diversified large-cap equity mutual fund,which is giving consistent returns.

* In the 30-40 year age group, set aside 2-5% of your net salary for the retirement corpus. Here again,look at a long-term investment horizon with an overweight on equity

* Between 40 and 50 years,note your current monthly expenditure after deducting expenses like rent/school fees/children education. Determine your and spouse’s life expectancy,the inflation rate and expected rate of return based on your risk appetite. After looking into all these factors,plan your asset allocation in debt,equity,gold and real estate

* In the agr group of 50 years and above,a common strategy for retirement planning is not advisable. Customised solutions based on your financial needs is highly recommended

The author is founder and managing partner of Zeus WealthWays LLP