Retirement

Planning
By-Jamila Rangwala
Munira Khanjiwala
Ummehani Fanuswala
 • Retirement planning is the process of
determining retirement income goals, and the
actions and decisions necessary to achieve those
goals. Retirement planning includes identifying
sources of income, sizing up expenses,
implementing a savings program, and managing
assets and risk.
•  Future cash flows are estimated to gauge whether
the retirement income goal will be achieved.
Retirement planning is ideally a lifelong process.
You can start at any time, but it works best if you
Meaning: factor it into your financial planning from the
beginning. That’s the best way to ensure a safe,
secure—and fun—retirement. 
• Retirement planning is an essential part of financial
planning. An increase in average life expectancy
increases the need for retirement planning.
Planning  for retirement not only ensures an
additional source of income but also helps in
dealing with medical emergencies, fulfil life
aspirations and be financially independent
Why Retirement Planning is Important?

• Retirement planning doesn’t mean one should only concentrate on their finances.
Retirement planning requires a combination of financial and personal planning.
Personal planning determines one’s satisfaction during their retirement.
• On the other hand, financial planning helps in budgeting income and expenses
based on the personal plan.
• Primarily personal planning revolves around the question ‘how does one want to
spend their retirement?’ Having an idea of how retirement should be will help in
determining financial needs. For example, some might want to travel the world
during their retirement, while others would like to learn a course or two, or
volunteer at an NGO. The retirement options are endless.
• However, having an idea about how one would want to spend their retirement is
the first step towards retirement planning.
• The lifestyle needs and preferences will help in estimating the finances. Therefore,
financial planning will help in creating a retirement fund.
 Higher
The average life
One cannot work complications, e.g.,
expectancy is
forever. medical
increasing.
emergencies.

Relying on one
Best time to fulfil Do not depend on
source of income is
life aspirations. children.
risky, e.g., pension.

Contribute to the Start planning

family even during early and diversify
retirement. investments.
 • Stress-free life-This is the most significant outcome of
retirement planning. Retirement planning helps to lead a
peaceful and stress-free life. With having investments that
earn regular income during retirement leads to a worry-
free life. Retirement is the age where one has to relax and
reap the benefits of all the hard work. 
• Money works for you-In the younger days, everyone runs
after their 9-5 jobs. Everyone works to earn money and
have a good living. However, retirement days are the days
Purpose of where one cannot work any longer. Therefore, it is the
time when the money one earned should do all the work.

Retirement To achieve this, one has to start their investments towards

retirement at a very young age. Starting small also helps in
generating significant returns in the future. Hence a
Planning. retirement fund should be a well-diversified portfolio,
that’ll have the capacity to generate returns during
retirement.
• Tax benefits-Retirement planning also helps in tax saving.
For example, investments in PPF and NSC qualify for tax
exemption under Section 80C of the Income Tax Act.
These are long term investments suitable for retirement.
There are a variety of investment options available for
retirement planning at the same time also qualify for tax
saving.
• Cost-saving-Planning for retirement at a young age will help in
reducing the cost. For example, in an insurance policy the premium
amount to be paid will be lesser when the policyholder is younger.
While getting insurance during retirement becomes costly.
• Inflation beating returns-Investing in retirement will help in earning
inflation-beating returns. Holding money in a bank savings account
will not generate high returns. In other words, the interest earned
will not be enough to lead an uncompromised retirement. Therefore,
proper investment planning will help one to generate significant
returns in the long term. Also, it is important to start investing early.
This helps in averaging out the impact of market volatility.
 • With a structured plan, you are equipped
to handle various factors such as
surpluses, shortfalls, and emergencies.
You understand how quickly or how likely
you are to achieve your retirement goals.
Additionally, you gain control on your cash
flows, your earnings and expenses, and
what level of risk you need to be take to
Why do you achieve all your goals.
• In short, a retirement plan will let you to
need develop a comprehensive understanding
of your life goals (the ENDS) and define
Retirement the path (the MEANS) to achieve it.
• Why do you need to plan your finances for
Planning? retirement?
• It is easy to cover your expenses if you are
earning your monthly salary. But post
retirement, you need to have enough
money set aside to live the rest of your life
and maintain a good lifestyle.
1. To cover daily living expenses-All of us have to bear the necessary living expenses even after retirement. Because life moves
on and the absence of our monthly income could become a nightmare. Retirement planning is working towards avoiding this
nightmare from becoming a reality. Not many people get pensions or gratuities post retirement and even for those who do
receive them; the amount is generally not big enough to cover all their expenses. By planning and building a sizeable
retirement corpus, you can ensure that your family's standard of living is not compromised post retirement.
2. To cover medical expenses-As one's age progresses, the number of health issues and emergencies also increase. And as you
might be aware, medical expenses bear the potential to create a huge hole in your pocket. In fact, these days even dental
treatments can cost you a small fortune. Mediclaim or health insurance policies sometimes may not cover all your medical
expenses. Therefore, your retirement corpus must be large enough to cover your and your family's medical expenditure to
avoid a financial crunch in the later years of life.
3. To fight inflation-It refers to the rise in the prices of goods and services. It erodes the purchasing power or value of your hard-
earned money. You see, there has been constant rise in price of goods and services, and it will continue to be on a rise until
you reach the retirement age. This means that you would have to pay more for everything in the future. From grocery to travel
to accommodation, it is all going to cost you relatively more in the future. Without a sound retirement plan, that aims to
establish an adequate retirement corpus accounting for inflation, life expectancy, rate of return, and so on; it would be
impossible for you to achieve all your retirement goals.
4. To deal with uncertainties-Life is quite unpredictable and uncertain. It can sometimes throw us in adverse situations and
circumstances which we may not have expected. Some situations have the power to create a financial as well as emotional
turmoil in your life such as natural calamities, loss of loved ones, financial difficulties in the life of family members, and so on.
Having a significant sized corpus to take care of such contingent events can always come to your rescue. Thus, while you
approach retirement, it is imperative that you have a sufficient contingency fund, so that the intermediate period of
turbulence and turmoil can be managed better and not hinder your long-term goal of retirement.
5. To meet your retirement goals-Retirement goals the objectives that you wish to achieve in your retirement years. These could
be travelling and exploring new places or taking up hobbies that you have always wanted to pursue. However, if you do not
plan and save for all these retirement goals in your working life, they cannot become a reality in your post retirement years.
Hence, it is essential to have a strong Retirement Plan that will make you aware where you stand today, and what steps you
need to take to achieve this goal.
How to plan your
retirement?

• Determine the investment horizon

To determine their investment horizon, one must
decide the age at which they want to retire. Then
calculate the number of years left until retirement.
This is the investable age or the investment horizon
for the investor. 

• Estimate the expenses

The next step is to estimate the current expenses.
They must determine what are the everyday
expenses that the investor must pay regularly. This
need not include child educational expenses or EMIs
as the investor might not incur this after retirement.
Have a contingency fund for retirement
Having a contingency fund for medical expenses is a
must during retirement. Medical expenses during
the age of retirement can be expensive. But
estimating these can get difficult. Hence, it’s advised
to have an emergency fund for the same.
 • Decide on the asset mix
Investors can take the help of a financial advisor
and decide on the asset classes to invest in. It is
suggested that investors invest in assets that give
inflation-beating returns. Inflation is a significant threat
to any investment. Post inflation, the real return from
an investment is lower than the expected return.
Hence investors have to invest in assets that give
returns higher than the inflation rate.

• Start investing early

Investing in the early stages of life not only helps
in creating a huge corpus. But also reduces the
financial burden of investing a lump sum amount in
creating a retirement fund. By investing at an early age,
one is buying more time for their investments, thus
increasing the effect of compounding on their
investments. Also, they can invest small amounts
regularly to reach their target amount.

• Avoid using the funds kept aside for retirement.

One major mistake people make is to use the
money set aside for retirement. Investors should
refrain from using the retirement fund for a child’s
education or marriage or any other purpose. Instead,
investors can plan out their life goals and allocate
some amount towards it every month. This way, each
financial goal will have its corpus.