Retirement Planning

Why retirement planning is critical in India?

India is a country where people are living longer, healthier and more productive lives than ever before. This has created a huge opportunity for entrepreneurs who want to start a business. But this opportunity also means that there is a growing demand for high-quality, affordable retirement planning services. 

As per a recent survey by National Retirement Planning, “More than 80% of Indians are unaware of the concept of retirement planning.” In fact, only 10% of the respondents had a formal plan in place for retirement. This is a big deal because, with a lack of planning, it can be very difficult for an individual to reach his or her goals and objectives during retirement. This article will discuss why retirement planning is so critical for those living in India and how to make sure you are financially prepared for this event.

Retirement Planning

What is a retirement planning?

Financial planning for retirement can be one of the most important financial decisions you make. 

Retirement planning is not the same as saving money for retirement. Retirement planning is a process that helps you prepare for retirement.

Retirement planning is making sure that you have enough money to live comfortably when you stop working/earning. In fact, retirement planning can be the difference between living in comfort and having to live in poverty during retired life.

You can retire at any age, but you should not retire before you are ready. As soon as possible, you can start saving.


Why is financial planning for retirement critically important?

Planning for retirement is a lot more than just saving money. It’s about building a solid foundation for your future.

When you retire, you’ll have more time to spend on your hobbies and other things that you enjoy but could not do due to work pressure and other financial responsibilities.

You should always save for your retirement, because you need that money when you retire. 

You should also plan for your future, because you never know what will happen in the future. You need to have a plan for your retirement, because you never know what may happen.

Who needs Retirement Planning?

Every Family or individual who funds his/her family finances needs retirement planning irrespective of her vocation/profession.

When should retirement planning begin?

Many people don’t think about retirement planning and it’s not because they don’t care. It’s because they’re not sure what to do or where to start. There are a lot of things that need to be considered when it comes to retirement planning, but the most important thing is that you plan for your future.

The best time to start your retirement planning is when you started earning and second best is when you become aware about the importance of retirement planning.

What are the benefits of retirement planning?

It is a common misconception that most people will be able to retire comfortably with their current income. The reality is that it’s almost impossible to retire comfortably if you don’t have an adequate amount of savings set aside. However, there are still some things you can do today to help ensure you will be able to enjoy retirement later in life.  Here are benefits of retirement planning ;

  1. You will be financially independent
  2. You will live a lifestyle of your choice 
  3. Achieving emotional goals
  4. Saving time
  5. Improving health
  6. Improving relationships


How to Plan for retirement?

As we get older, we need to consider our retirement planning. But what if you are young and do not know where to start?

Here are some tips on how to plan your retirement.

1) Start early: The earlier you start, the better it is for your future self. You have more time to adjust and plan accordingly.

2) Consider different options: There are many different options when it comes to retirement planning, such as stocks, bonds, annuities etc. so do your research before deciding on one.

3) Diversify: Diversifying your investments is always a good idea because that way if one type of investment fails, there will be others that can back them up and help you reach your goal.

3 phases of retirement planning

Accumulation : This phase starts when you start earning from your vocation or profession and ends the moment you retire. As the name suggest in this phase of retirement planning you need to determine what sort of retirement life you wish to live and than quantify your needs in terms of monthly income needed. Then workout an investment plan to accumulate the desired retirement corpus that ensures your desired retirement life.

Consumption : This phase starts when you actually retire and start living an income from your retirement corpus created in the accumulation phase. 

Estate Transfer :  If you plan properly and early there a possibility of creating an inheritance to be transferred to your next generation and for that you need to do proper estate planning as a will or Trust as the need may be.

Common Mistakes while planning for Accumulation Phase

During my practice as Financial Planner and wealth coach, I observe people making few common mistakes while doing financial planning for retirement. Let’s understand so that you  do not make the same mistakes.

  1. Not considering proper inflation while saving and investing for retirement : Almost all do not consider or under estimate impact of inflation on their monthly expenses during retirement.
  2. Relying solely on to Employer Provided Retirement Plan: One should not rely solely on employer provided retirement plan such as PF/EPF/CPF etc as it may give you return which may be less than your life style inflation. So you need to continue to use employer provided retirement plan but along with the same, you need to invest into other suitable investment vehicle that can give you returns required by you. 
  3. Poor Judgment about life expectancy:  Life expectancy is rising over last decades in india, which means an average indian is living longer than before. While doing financial planning for retirement one need to provide for adequate life expectancy so that you do not outlive your retirement corpus. 

Where to invest to accumulate retirement corpus :

Investing in India is a great way to accumulate retirement corpus. With the Indian economy booming and the country becoming more open to foreign investment, there are many opportunities for investors to make money.

The country offers a large market, low inflation rate, a strong currency and a helpful tax regime. It also has the world’s third-largest pool of skilled labor, which helps companies to find the needed talent easily.

India has seen an increase in the number of people belonging to the middle class and rich class. There are many sectors that have grown tremendously, such as retail, healthcare, technology, and real estate.

The stock market has also seen a growth of over 20% in the last year. This is a sign of more growth in coming years with India’s GDP growing at 7%.

There are many ways to invest in India. But there is one way which is the safest and most liquid form of investment.

It is a mutual fund that invests in stocks, bonds, debentures and other securities. This type of investment has a long-term horizon, and it suits all risk profiles.

Apart from Mutual Funds, Investor has options of Small Savings Scheme, PPF and NPS. 

Issues need to take care while creating inflation adjusted pension during retirement

While managing your retirement corpus, you need to ensure the following;

  1. Provide for adequate Medical Coverage
  2. Provide for recurring healthcare expenses /Medical expenses that is not covered by your medical insurance
  3. Your investment need to be protected from inflation

Best strategy to provide for Inflation Adjusted Income during retirement from your retirement corpus is to follow bucket strategy. I have written a full article on Bucket Strategy Here.

Issues Need to take care for transferring your wealth to next generation

If you have planned for your retirement very early and have invested into growth asset like equity or equity mutual funds, you can create a legacy asset for your next generation.

This section will discuss the issues to take care of while transferring your wealth to next generation.

Most people usually want to leave their wealth as a legacy for their children, grandchildren, and great-grandchildren.

However, there are many things that need to be taken care of before transferring your wealth.

The first is that you should have a will which states how you want your assets divided among your heirs and what kind of inheritance tax you will pay.

The second thing is deciding who will inherit the assets from you and what kind of tax they will have to pay on it.

The third thing is deciding when these assets should be transferred so that they can still be used for as long as possible.

The fourth thing is to decide suitable estate planning tool either a will or a trust and implement your estate planning by implementing that instrument for succession planning.

Should I do my financial planning or work with a SEBI Registered Investment Advisor?

If you could take care of all the issues discussed in this article during all 3 phases of retirement planning, you should do your financial planning for retirement on your own or else you may consider to work with a SEBI Registered Investment Advisor.

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