Wake up and plan for your retirement

Singh had made clear financial goals and was diligently working towards them through investing in mutual funds. With a monthly take-home salary of R 90,000,Avneet saves about 30,000 every month. He divides that amount into three parts – R 15,000 towards buying a bigger house,R 10,000 towards education of his seven year old daughter and R 5,000 towards his retirement. Since he wants to retire at the age of 60,he has only 20 years left to create the corpus. The financial planner analysed his monthly expenses and taking inflation into account took out the total corpus he required to build over that period. Now assuming an annualised return of 12 per cent on his investments,he was supposed to invest at least R 15,000 towards retirement goal.

Avneet had to re-prioritise his goals and he started investing R 15,000 towards the retirement corpus,R 10,000 towards bigger house and R 5,000 for his daughter’s education.

“Before you work on the roadmap towards retirement planning,just ask yourself when do I want to retire and how much do I need after retirement,” says Sumeet Vaid,CEO,Freedom Financial Planners.

WHEN TO RETIRE?

An old saying goes,“the question is not at what age you want to retire,it is at what income.” It is the cushion you have created over the years which will allow you to take retirement and not your age. “All of us know that we want to retire when we have “enough” money. But knowing how much is ‘enough’ is the tedious job,” Kartik Jhaveri,a Mumbai-based financial planner said.

To arrive at a correct figure,there are several questions you need to ask:

* What is your risk appetite?

* How much money do you have now?

* What kind of lifestyle you want to have post retirement?

* At what age you want to retire?

* Do you have a house or planning to buy a house?

Once the numbers are in place,you just need to work towards your goal and review it from time to time. If numbers scare you,a good financial advisor may help you arrive at that number. Remember to consult afinancial advisor who focuses on creating a plan for you and not someone who is only interested in selling you products.

Smart saver

Most people ignore small numbers waiting for that big amount to come by which will help them move towards their goal. There are only two ways of investing more. Either increase your income or increase your saving. It may not be easy to increase your income all the time,but you can always become a smart saver. Some number crunching will show how small savings can help create huge corpus over the years. Let us assume an annualised return of 18 per cent in an equity MF,invested for 30 years through monthly SIPs:

1. Suppose you cut down on your travel and food bills and are able to save Rs 10,000 extra per month and invest it. This will fetch you R 17 crore.

2. If you can save a little on fuel and electricity on daily basis – say R 80 per day or R 2,400 per month and invest it every month for 30 years,it will fetch you R 2.3 crore.

3. If you and your spouse can save some money and invest it,let us say R 5,000 per month,on entertainment,holiday and other discretionary expenses,it will fetch you R 4.7 crore.

If we add the additional savings which will come with increase in your salary every year,these numbers can double or triple. All this does not require any complex futures and options trading,or watching business news channels whole day or even reading some heavy personal finance book. Just a little bit of discipline and investing money would help you create a large corpus.

One common mistake which many parents in India tend to do is to divert most of their savings towards the needs of their children. While it may sound good emotionally,it does not make too much financial sense. According to the experts,the first priority must be to separate savings for retirement corpus and then start looking at other goals. Always remember that there are loans available for marriage,education,travel etc,but not for your retirement. If your daughter wants to do an MBA,she can always take an education loan and pay it off through EMIs when she starts working post her MBA. The very assumption that your children will take care of you when you grow old may not be a very practical idea and can have huge repercussions if things do not turn out to be as planned.

If you retire at the age of 65 and live till the age of 90,it is a good 25 years that you have to support yourself and your spouse. Drastic change in your lifestyle after you retire,just because you did not save enough might come as a rude shock to you. So wake up and start saving now.

—ritukant.ojha@expressindia.com

RETIREMENT PLANNING

* Just ask yourself when do I want to retire and how much do I need after retirement

* The question is not at what age you want to retire,it is at what income

* Mistake which many parents do is to divert most of their savings towards the needs of their children

* It may not be easy to increase your income all the time,but you can always become a smart saver