Many men and women today are living well into their 90s and enjoying a good life. Unfortunately, most senior-citizens don\u2019t plan for the 30-plus years that they are going to spend as retirees. In fact, this is often the least of all their priorities. For most Indians, all financial planning ends once their children get married.<\/p>\n
If you want to have a very comfortable retired life, you have to start saving, not at the age of 60 but at 20!<\/p>\n
Why should you even think of retirement planning?<\/b><\/p>\n
Let\u2019s consider two people. We\u2019ll just call them Ram and Shyam.<\/p>\n
Ram is a senior executive in a large factory. He worked hard all his life, built a modest house, paid off the mortgage, educated his three children and paid for their weddings. Whatever little he had saved for his retirement went into unexpected expenses. He was virtually penniless, yet did not say a word to his children. He struggled to make ends meet.<\/p>\n
Shyam is also a senior executive like Ram. When he retired, he got Rs.20 lakhs as retirement benefits.\u00a0 A year after he retired, Shyam had a heart attack. His wife rushed him to an expensive corporate hospital, saying only the best hospital would do. A week later, he was discharged. The bill? Rs.9 lakhs! \u00a0Now he had to live his life with interest from Rs. 11 lakhs. Shyam cut back drastically on expenses, never travelling, visiting relatives or going to an occasional movie or to the restaurant. All these things meant only one thing to him: expenses. He became a recluse. Life became miserable.<\/p>\n
The condition of government officials is no better. Those who joined government service in after 2004 are not going to get a pension. They too have to plan for their retirement, just as people in the private sector do.<\/p>\n
Here are some simple things you should do to retire comfortably.<\/p>\n
What do you want?<\/b><\/p>\n
The first thing to do is to discuss extensively your spouse about all your financial needs in the future. If you haven\u2019t retired and are still working, you have to consider various expenses\u2014planned and unforeseen\u2014depending on your age. These include the education of your children, buying a home, marriage of children, holiday travel, buying vehicles, medical expenses and building a retirement corpus.<\/p>\n
Write down these expenses, which should be realistic and factor in inflation, which generally has been around 8 percent a year in recent times. If you want to be even more conservative, use 10 percent inflation throughout your life span for easy calculation.<\/p>\n
How much should you save?<\/b><\/p>\n
You have to decide at what age you plan to retire. The earlier you want to retire, the more money you will need as a corpus.<\/p>\n
Let\u2019s say you are 30 years old now. You say you want to retire at the age of 45, with Rs4.5 crore in the bank. To get that amount of money, you will have to save Rs.90,000 a month from now, and it should earn 2 percent more than inflation (for calculation sake, we\u2019ll say, inflation is 10%. So your return should at least 12%). You feel you can\u2019t save that much. So, you decide you\u2019ll retire at the age of 58. You\u2019ll need to save only Rs.16,475.\u00a0 How is that? Your period of saving is longer and the interest gets ploughed back. This is known as the power of compounding. Women live longer than men do. So, if you are a male, plan your finances based on the life expectancy of your wife.<\/p>\n
How much money do you need?<\/b><\/p>\n
Discuss with your spouse on how much money you will need when you retire. Discuss whether you plan to travel extensively, or buy a vehicle or own property or a farm. How much money will you need to live? Itemize every single thing to arrive at this figure. Remember, you are not going to have any income at this time. Also, prices rise. So, factor-in an inflation rate of 10% a year\u2014even if the rate is lower.<\/p>\n
While you may scale down on many activities as you grow old and therefore avoid spending money on, say, eating out or going to the movies, you will end up spending more on such things as medical care and help around the house. When you are young you may be able to dig in the garden. When you are 70 or 80, you may have to hire someone to even change a tubelight!<\/p>\n
Let us say you are 30 years old today, and your household expenses are Rs. 30,000 a month. You plan to retire at the age of 58 and not cut back on anything. In fact, you want to improve your standard of living.<\/p>\n
Even at a conservative 7 per cent inflation a year\u2014the government claim\u2014you will need Rs. 2.1 lakh a month 28 years from today. Let us assume a life expectancy of 80. To get Rs.2.1 lakh a month, you need a corpus of Rs. 4.5 crore (without factoring-in the tax on investment returns).\u00a0 That means you have to save about Rs.16,500 every month for the next 28 years and it should earn a return of 12 percent.<\/p>\n
But you had earlier said you\u2019d even like to improve the quality of your life. More expenses! Let us say that you want to spend 2% more on expenses. Your corpus required now ballooned from Rs.4.5 crores to Rs.7 crores!<\/p>\n
The single major expense in old age is medical care. If you have adequate care for major diseases, you are better off than most people. You may at best require an additional amount of money for outpatient treatment.<\/p>\n
If you don\u2019t have a medical policy, get one at least four years before you retire. Make sure it is adequate and covers pre-existing ailments (these usually require a four-year wait before they are covered; the earlier you start a policy the better). Get a health policy for your spouse too. And, by the way, never allow an insurance agent to fill out the form for you since they sometimes give wrong information, especially about pre-existing conditions, to reduce the premium. When the time comes to settle a bill, the insurance company will say you lied in the form and refuse to pay!<\/p>\n
How much money should you set aside for each expense?<\/b><\/p>\n
You can\u2019t blindly say that you have so much money and therefore will take holiday in Italy! A good financial planner will help you allocate your surplus money into a basket of investments\u2014debt, equity, gold, real estate\u2014after taking into consideration how much risk you are willing to take and how much money you want.<\/p>\n
In general, equities are the best asset class to beat inflation. Sure, in the last 10 years, gold has kept pace with equities and delivered a yearly return of 18%( before the recent correction).<\/p>\n
Let us say you are in your 30s and want your portfolio to generate a return of 12%. You have many years before you retire and so you invest 50% of your surplus in equity, 20% in debt and real estate and the rest in gold. You are expecting a return of 15% a year from equities, 12% from real estate and 8% from debt and gold. This portfolio will deliver a return of 12.3%. Suppose, you reduce the equity portion to 30% and park the rest in debt and gold, your return will be only 10.1% even with the kind of money you hope to make in each sector. That\u2019s because the amount of money allocated to each sector has now changed. That\u2019s why the way you allocate your surplus can make or break your portfolio return.<\/p>\n
How do you meet any shortfall in the corpus?<\/b><\/p>\n
You cannot be certain that your portfolio will earn the kind of money you had assumed it would. That\u2019s why you must monitor your portfolio periodically to see if you are on track. If there is a shortfall in the retirement kitty, make it up by increasing your contribution every time your salary goes up.<\/p>\n
If at the time of retirement, you are still short of the target, you can arrange for a reverse mortgage of your house if you have one. Loans are available to senior citizens for this purpose. You can use that money to meet your household expenses.<\/p>\n
<\/p>\n
If you need further any info on retirement or you need to construct one, do write to info@myassetsconsolidation.com<\/a> or suresh@myassetsconsolidation.com<\/a>.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Many men and women today are living well into their 90s and enjoying a good life. Unfortunately, most senior-citizens don\u2019t [\u2026]<\/span><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5],"tags":[],"yst_prominent_words":[],"_links":{"self":[{"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/posts\/161"}],"collection":[{"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/comments?post=161"}],"version-history":[{"count":0,"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/posts\/161\/revisions"}],"wp:attachment":[{"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/media?parent=161"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/categories?post=161"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/tags?post=161"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/myassetsconsolidation.com\/blog\/wp-json\/wp\/v2\/yst_prominent_words?post=161"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}