Retirement Planning has become a buzz-word these days! Every newspaper, every news-channel seems to talk something or the other about retirement planning. What is more surprising is, when talking about retirement planning, everyone is just talking about wealth one needs to accumulate for retirement. Agreed, you do need a good amount of wealth when you retire so that it generates regular income for your sunset years. But does it mean, retirement planning should just focus on the wealth creation and nothing else? Not Really! I will share a small story here:
Mr. Dasgupta retired 4 years back, at the age of 58. His retirement corpus included 3 things: (A) His Provident Fund of Rs. 15 Lakhs (B) His Endowment Policy of Rs. 2 Lakhs (C) His home.
Today, after 4 years, Mr. Dasgupta is facing a post-retirement depression. He has nothing to do. He can’t sleep for all day long. He can’t even watch TV for too much time. The monthly income generated from his “retirement wealth” is too meagre for him to make any ambitious plans of travelling. At the age of 62, he has already lost interest in life and awaiting death, in spite of not having any major illness.
We need to take some important lessons from this story. Whenever you think about retirement planning, ask few questions to yourself:
1. What age do you want to retire?
This depends on the nature of your work. Just to give you an example, cricketers and other sports people retire at 36-37, whereas some politicians start their career at 40. So assess your work profile, and considering various factors, arrive at the age when you would like to retire (or stop working in the current field). This would also give you the number of years you have to plan your retirement, thereby giving you better insights for planning. For example, if you have decided that your work stress won't allow you to work after the age of 50 and you are already 38, then you know that you got only 12 years for retirement and need to plan accordingly.
2. What do you mean when you say, you would retire?
You will have to define, what retirement exactly means to you. When you answer the first question, you would also be working on this question. If you are salaried, you would stop going to office. If you are a business person, you would go to office, but may be for lesser hours. So define your own retirement as per your profile.
3. If retirement means stopping to do what you do currently, what is that you would like to do?
Most of us think that retirement is to take rest and to enjoy. Indeed it is. But we will have to do little more homework and brain-storming to find out, how many hours of a day we want to rest and how do we define enjoyment. Find out what are your hobbies for which you are not able to shell out time currently, and would like to give them more time in your retirement. If you are planning an early retirement, understand that you would not require more than 2-3 hours of additional rest than you are having now. If you are taking a 6 hours sleep currently, you won't be able to sleep for more than 8-9 hours in early retirement (unless suffering from some major health problems).
4. Which city and place do you want to stay when you retire?
The metropolitan city in which you have worked all your life may not be the best place to retire. But then to buy a big house in a remote area and staying there could be an equally bad idea. Even if you think that, post-retirement, you would not be able to cope up with the fast life of metro cities, make sure that you do not stay at a place which is too far from basic necessities like hospitals, jogging parks etc. You would be needing these places in retirement years. Some people dream of buying a bungalow at a hill-station and stay there for retirement. Before doing so, also analyse the approach to the closest city which would have good medical facilities. Also, hill-stations could be a good place when you visit it for 7-8 days. But staying there requires a pretty different kind of mindset and liking. Assess if that lifestyle would suit you long enough to settle down there.
5. What would be your lifestyle?
Higher than current or at par with current (Lower than current is totally undesirable as it would totally defeat the purpose of planning). Some people believe that they have sacrificed all their desires all their lives and now is the time to live them. Not wrong, I would say. So identify, if you are one such person. Or you are a person who would still be comfortable with the same lifestyle, with some moderate progress in the same. This also involves assessing your current monthly and yearly expenses, arriving at monthly expense figure for retirement (after taking inflation into account) and also figuring out, what would be the source of this income. For example, if your current monthly expenses are Rs. 25,000 and you plan to retire after 20 years, then a 5.5% inflation would push these expenses to around Rs. 80,000 p.m. with the same lifestyle. Now, you will also have to find out, how this amount of Rs. 80,000 will be earned by you at retirement. Since you won't be working, you will have to accumulate a significant wealth which would generate an income of this amount.
Once you are ready with the answers of above questions, try and keep following things in mind for your retirement planning:
1. Your retired life could be as long as your working life i.e. 25-30 years. Don’t be a loser by spending this life waiting for death. Enjoy this life equally (if not more) like your working life.
2. You may devote time for some social activities that interest you. You may also try playing some sports. Apart from this, if you are gifted with some special talent like teaching then you may take up some 2-3 hours classes to pass-on your talent to the younger generations. The purpose is not to earn money but to keep yourself busy and command some respect from the society.
3. Travel to places, if you love to. Make a list of places you would like to travel when you retire. Also, treat this as separate goals and arrange finance for the same during your working years.
4. Do brainstorming about your city of retirement. Assess the amount of money needed to buy a house in that city and plan accordingly.
5. Do not invest in risky assets post retirement. The time to take risks is only in your working years. Retirement years, you need to be happy with the lower returns generated by fixed deposits and government bonds. However, for that money to be enough, start building wealth for the same at a younger age itself.
The Author Prof. Saurabh Bajaj (BE, MBA, FRM) is Chief Investment Planner with Nidhi Investments, Mumbai. He may be contacted on saurabh@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author. The characters used in the article are hypothetical).
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