What is Retirement Planning?

For most of us, Retirement Planning isn’t something we take seriously until we hit our mid-forties. One fine day, we get up realising we’ve got less than a decade and a half left until we hang up our work boots, and panic sets in! Since we no longer have time on our side, we end up making massive lifestyle compromises in order to put together a corpus that’s sizeable enough to help us pull through our non-earning years. Needles to say, this isn’t an enviable position to find yourself in.

Truth is, most of us do not possess a keen understanding of what Retirement Planning really is, and how to go about it. Oftentimes, we end up purchasing fruitless annuity policies that do not safeguard us against inflation and bury our heads in the sand thereafter!

A simple and formal definition of Retirement Planning would be – a structured approach towards the accumulation of a corpus that’s sizeable enough to outlive us. In other words, our Retirement Planning corpuses need to be large enough to pay for the inflation adjusted values of goods and services that we’ll consume for anything from 20 to 30 non-earning years, plus medical costs, plus travel and leisure expenses, plus (optionally), bequeathment that we’d like to make.

In India, a multitude of demographic challenges loom on the horizon. We have a burgeoning non-working elderly population. Further, with increasing life expectancy, the number of retirement years is also expected to increase – collaterally raising the need for a larger fund.

Although defined contribution investments such as PPF do fulfil the need for Retirement Planning to an extent, most people who rely on them to see them through a lengthy retirement phase will end up falling woefully short.

In the present scenario, it is imperative that our Retirement Planning involves a well-diversified, reasonably aggressive portfolio of assets such as Mutual Funds, Bluechip Shares or even NPS (to an extent).

A flexible roadmap should be drawn up early on in your career earnings cycle, and even small beginnings should be made in investments such as Mid Cap Mutual Funds, via the SIP (Systematic Investment Plan) route. This plan could be revised on an annual or bi-annual basis to accommodate changing earnings and shifting financial objectives, that may change basis life events or your life stage.

A Retirement Plan should be holistic and enable you to achieve your Financial Goals before and after retirement. This can only be the case if you make an early start, and allow compounding to multiply (rather than just ‘grow’) your savings over the decades of your working life.