Module 6: Retirement Planning-

Start early and peaceful retirement – Tracking and reviewing financial plan – Danger
of Dipping your retirement savings

Today you all must undertake an exercise. Try to figure out the answer to this question –
What would you like to do post retirement? Do you wish to travel and explore new places,
take up that one hobby you have always wanted to pursue or become serious about fitness
and improve your health? Well, retirement can give you plenty of time and opportunity to
spend the golden years of life the way you want and with the same lifestyle that you enjoy
today. But this dream can become a reality for only a few. We say ‘few’ because not many
people realise the importance of retirement planning. You must understand that retirement
planning is the only key to remain financially secured and maintain a comfortable standard of
living even in the later years of life, where you may not draw regular flow of income. You
see, planning for retirement can keep you financially independent even during your golden
years, taking care of day-to-day expenses as well as any medical emergencies that may arise
as one’s age progresses.

Here are a few golden rules that can give you peace of mind during your retirement years if
implemented correctly:

1. Determine the Retirement Corpus

Unless you know where you are headed, it is very difficult to get there. In retirement
planning as well, it is important to have a target in mind which you wish to achieve in
order to live life comfortably in the second innings of your life. To arrive at some corpus
amount, you might need to make certain estimations and assumptions. You have to first
work out what age do you wish to retire at, what is your life expectancy (based on family
history and health conditions), how much you spend every month, inflation that you
expect on these expenses, pre and post retirement rate of return that you expect on
investments, etc. Thereafter you can compute the corpus amount required for your
retirement. You could take the help of online retirement calculators to arrive at this
target figure.
2. Start Early, and Retire Peacefully

An often-heard excuse for putting off retirement planning is “I have enough time to go
before I retire, so why rush?” Unfortunately, most of us fail to realise that procrastination
is their biggest enemy when it comes to making retirement plans. In fact, starting early
and ensuring that you have sufficient time on your side is the key to successful
retirement planning. It is imperative for you to understand that being young provides you
a benefit that is not available to all, 'time'. As it is said, "the early bird gets a bigger pie".
Moreover, as you grow older, your risk taking capability decreases. Starting late is
disadvantageous since it gives you lesser time to grow your retirement kitty. There is
even a possibility that you may fall well short of your target.

For example

Mr. X decides that on retirement he will need a corpus of Rs. 25 lakhs (after taking into
account his present income and expenses, the likely increase in both etc.). Assuming that
his investments will earn a return of 12% p.a. how much does he needs to invest per
month so as to achieve his retirement objective?

Given here is a table showing 3 scenarios, in each scenario we have taken the tenure
(time left) to the goal realisation to be different:

Case I Case II Case III

Target Amount (Rs.) 25,00,00025,00,00025,00,000
Tenure (years) 30 20 10
Returns (%) 12 12 12
Annual Investment (Rs.) 9,249 30,979 1,27,197
Monthly Investment (Rs.) 708 2,502 10,760

3.
In case I, the monthly investment amounts to approximately Rs. 708 to achieve Mr X’s
target amount; however with passage of time, it grows exponentially. As a result if he
starts investing for retirement as in case II, 20 years before the due date, Rs. 2,502 will
be the monthly investment amount. Finally in case III, when he is just 10 years away
from his retirement, the monthly investment required will be Rs. 10,760.
 Lesser the time at your disposal, the higher the amount has to be set aside for meeting
your retirement needs. Not only can the same be hard on the wallet, for some it may not
be a feasible option. As a result, the pre-determined investment objective might have to
be toned down. Moral of the story – Not only does it pay to start early, delaying the same
can cost you dear!

4. Follow your Asset Allocation

Exposure to different asset classes is imperative in building your retirement portfolio.

The different asset classes (equity, debt, gold) have different attributes which help in
maintaining the required balance in one’s retirement portfolio. By following your asset
allocation we refer to investing into each asset class, based upon your risk appetite and
the number of years left for goal realisation.

5.

For example, if you are going to retire in more than 10 years, then depending on your
risk profile, your retirement funds can be channelized primarily into equity, with a 10%
to 15% exposure to each debt and gold. If your retirement goal is more than 5 to 7 years
away, you can have 45% to 60% exposure to equity, with upto 15% in gold and the rest
in debt. However, if you are retiring in less than 3 years, it is advisable to redeem any
equity investments and shift towards debt / fixed income instruments that are not
impacted by market volatility.

You must remember that merely following a suitable asset allocation alone will not help
you reach your goals unless you invest in sound and appropriate investment venues.

6. Choose suitable Insurance Policy

Insurance is a must in retirement planning. As one grows old the number of physical
ailments that one might suffer from also increases. Moreover, our life is quite
unpredictable and uncertain. While you might believe that something will not ‘happen to
you’ – that is often exactly what your neighbour is thinking. Hence it is extremely
important for you to have a suitable and adequate health insurance policy or mediclaim.
Apart from this, it is also wise to opt for a personal accident and critical illness policy
from an early age. It is also advisable to maintain a medical contingency fund worth 5 –
10 lakhs (depending upon how much you can afford) and a general contingency reserve
with 6 to 12 months of your expenses to compensate for unforeseen events. This will
ensure that your retirement savings do not get eroded in case something unfortunate is to
happen to you or any of your family members.
7. Track and review your plan

Your retirement plan needs to be monitored at regular intervals (atleast once a year) to make
sure you are on target to meet your objectives. Any changes in the income, expenses,
retirement age etc. needs to be incorporated in the plan. Also, make sure the plan meets your
investment objectives in the changing market scenario.

If you follow the above mentioned rules in a systematic manner, planning for your
retirement will not be a difficult task. However remember that in case you are unable to
devote time or need help in constructing a suitable retirement plan, investing in the advice of
an experienced investment consultant will not be a waste of money.

PersonalFN believes that while planning for your retirement you are planning the finances
for the golden years of your life. It must be given due importance and dealt with utmost care.
After all, you want to live for yourself and enjoy the fruits of your life-long efforts in the
second innings of life.

Retirement Planning is must for everyone - but only few of us take it seriously.

There are a few simple things that you should always keep in mind while planning for your
retirement. These steps will ensure that you do not have to compromise on your standard of
living when your regular income stops.

Here are the 3 Simple Steps which can give you peace of mind during your retirement years.

1. Start early, and retire peacefully

When you are young, your risk-taking capacity is high and since you are earning well
and you also have the necessary time to plan your retirement, you can expect high rate of
return. As your age increases, your risk taking capability decreases. Also, since the time
left to retirement decreases, chances are higher that you might not achieve 100% of your
desired retirement corpus if you start late.

(Do use our Retirement Calculator to see how much you need to retire peacefully)

We will illustrate this with the help of an example:

Mr. X wants a corpus of Rs. 5 crores by the time he retires at the age of 60.
 This is quite a tidy sum. His current investible surplus per month is Rs. 10,000 p.m. and
it will remain this amount until his retirement. Doesn’t seem very difficult, right? He will
invest in equity mutual funds, and so expects to earn approximately 12% p.a. as return
from his investments over the long term.

Given here is a table showing 3 scenarios, in each scenario we have assumed different
current age of Mr. X:

Current Investment (p.m.) Investment Corpus at Retirement (60 years)

Scenario
Age (Rs.) Return (Rs.)
1 25 Rs. 10,000 12.00% Rs. 64,952,691
2 35 Rs. 10,000 12.00% Rs. 18,976,351
3 45 Rs. 10,000 12.00% Rs. 5,045,760

2.
From the above mentioned table we can conclude that if Mr. X current age is 25 years,
he is able to save approx. Rs. 6.50 crores by the time he retires, but if he is 10 years older
i.e. his current age is 35 years he is just able to accumulate approx.Rs. 1.90 crores. In the
last scenario we have assumed his current age as 45 years and he is just able to
accumulate approx. Rs. 50 lakhs.

Out of the above 3 scenarios Mr. X is achieving his desired corpus of 5 cores only if his
current age is 25 years. In the other two scenarios he is not able to achieve his desired
retirement corpus.

The reason he is able to achieve his desired retirement corpus in the 1st scenario is
because of longer time horizon. The more time you give yourself, the longer your money
works and compounds for you. You are giving yourself the gift of compounding.

(Read our article titled The Psychology of Planning for Your Retirement)

3. Follow your Asset Allocation

Your asset allocation will tell you how much you should invest into each asset class
(equity, debt, gold), based on your number of years left till your goal.

For example, if you are going to retire in more than 10 years, then depending on your
risk profile, your retirement funds can be channelized primarily into equity, with a 10 to
15% exposure to each debt and gold. However, if you are retiring in less than 3 years, it
is advisable to redeem any equity investments and shift towards debt investments that
are fixed income in nature, and not linked to the market.
4. Track and review your plan

Your retirement plan needs to be monitored at regular intervals to make sure you are on
target to meet your objectives. You could do this on your own or take assistance from
your financial advisor. Make sure the plan meets your investment objectives in
changing market scenario.

If you follow the above mentioned 3 points in a systematic manner, planning for your
retirement is not a difficult task. The challenge just lies in implementing the plan with
disciplined investing.

Also remember, when planning for your retirement you are planning the finances for the
golden years of your life. Don’t compromise today on how you are going to live your
life tomorrow.

To give you an idea of how rewarding a retired life can be, if it has been properly
planned for in advance, here are some broad activities that you might enjoy:

 Travelling - discovering new places and cultures or rediscovering old places

 Expand your mind - increase your reading
 Improve your health - you have time now for all the exercise you wanted to get
while you were working but could not because of the office! You can go jogging,
swimming or cycling, or pick up a sport
 Pick up a hobby - photography is a favourite but can get expensive; art, golf and
music are close seconds
 Do charity work - you have had a rewarding life, now is the time you can give back
to society, teach underprivileged kids or volunteer at an old age home
 Spend more time with family - your kids and grandkids

That adventure sport you wanted to try? Your retirement is when there will be nothing to hold
you back. So give your retirement the importance it deserves. Planning for it now will
determine how comfortable it will eventually be. Ad these 3 simple steps will help you
achieve the retirement of your dreams. For a personalized Retirement Planning solution,
please do Contact Us -our team of Investment Consultants will be happy to help you.