August 07, 2015
Why Plan for Retirement
The early jobs in India in the decade of 60s and 70s were created by the government and public sector undertakings. These early salaried individuals are either already retired or are on the verge of retiring. With security of government provided pension benefits, these retirees are able to spend their sunset years with ease. As the government provided the safety net of pension income, a majority of salaried individuals did not find it important to accumulate large funds to meet their post-retirement needs.
It is only from 80s, that the private jobs started getting momentum, which further amplified in 90s decade. The time has already come that the 80s salaried individuals are on the brink of retirement, and the 90s working individuals shall retire in next 15-20 years. Since private jobs, and also government jobs created after 1st January 2004, do not offer any pension benefits, it is the onus of the individuals to create retirement fund for themselves to take care of their post retirement financial needs.
When we talk to individuals about retirement planning, we find that though all agree to the importance of retirement planning, only few actually understand the reasons of why a structured, disciplined and early retirement planning is critical.
Six Reasons to Plan for Retirement
1. Absence of Government Support: A non-pensioner, whether in private job, or in government job, will have to plan for all his post retirement income on his own. Every expense incurred on oneself, whether to meet basic needs or leisure needs, will have to be met by one’s own accumulated funds.
2. Joint family system to Nuclear Family system: Increasingly, Indian joint family system is breaking down and nuclear families are becoming the norm. The next generation is less likely to support their parents in their old age, primarily due to not staying together. People who are planning for retirement need to factor in zero support from children and therefore have to take care of themselves throughout their lives.
3. Increasing life expectancy: With medical advancements, average life expectancy in India has increased significantly. 15 years ago, the average life expectancy in our country was 59-62 years. Now, it is 72 years. Over the next 10-15 years, we must expect it to increase to 80. Retirement period of at least 20 years will now have to be planned for, maybe more.
4. Increasing health costs : Total amount spent by individuals on health care is increasing, in direct proportion to increasing life expectancy and usage of medical facilities that cure ailments that were previously difficult to cure.
5. Falling interest rates : 10-15 years ago, bank interest on deposits was 12% and company FDs gave 14-15%. Now, bank FDs give 8-9%, company FDs 9-10%. As the economy grows and matures, interest rates will keep falling. Over long term, the interest rates in India shall align with low interest rates prevalent in more developed countries. Over a 20-25 year period of retirement, investors will need to factor in gradually falling interest rates leading to reduced income post retirement. It means a larger fund shall be required on retirement to meet the future needs.
6. Increasing Aspirations: Gone are the days when the retirees used to sit in the verandah and read newspaper whole day. Todays and future retirees shall be physically fit and will have aspiration to live a relaxed and leisure life than what they have lived in their working years. Senior citizen oriented foreign trips and club memberships are only couple of examples to illustrate the point. The freedom the individuals shall have after meeting their family commitments towards children and after completing their stressful working years, will motivate them to live life with full vigor and enthusiasm. The new, leisurely lifestyle shall demand more money than what a decade old pensioner required for his living.
Best Time to Plan for Retirement is Today
With Indian economy looking to pick up after several years of slowdown, growth investments are expected to perform well in the coming decade. Early investments made in growth oriented equity funds shall help the money to grow at attractive rate over medium to long term. The accumulated fund shall also get more time to compound, thus creating a huge retirement fund with limited resources.
A delay in retirement planning shall mean that investor will miss the coming growth years. He will, therefore, have insufficient time in future to accumulate and grow his wealth for retirement.
Spare couple of minutes and plan for your retirement using Retirement Fund Calculator. Talk to your financial advisor or Investguru Team to discuss Best Investment Options for Your Retirement Planning. Remember, the early you start, the more relaxed and enjoyable your retirement years shallbe.
Pawan Agrawal is the founder and managing partner of Investguru. You may reach him at firstname.lastname@example.org .