Most of us believe expenses reduce after retirement. However, soaring inflation and rising cost of medical care can leave less money in your pocket, forcing you to cut down on other essential expenses. With inflation running at 7-8%, your expenses will double every 9-10 years. Therefore, to remain afloat, you must ensure that your retirement corpus too doubles during this period. Indeed, one of the greatest financial challenges for a financially secure life after retirement is making your savings keep pace with inflation.
Only a good retirement plan can ensure that your savings maximize your potential income at a risk level you are comfortable with.
What is a Retirement Plan?
A Retirement Plan is a financial plan that takes into account your financial goals, current financial situation and risk profile to outline an investment strategy that ensures that you have sufficient income after you hang up your boots.
A comprehensive retirement plan factors in the following:
• Your current age
• When you should retire
• Your current household expenditure
• Lifestyle desired in retirement
• Yearly rise in cost or inflation
• The retirement corpus you will need
• The retirement income you will need
• The type of investments you need to make
• Your goals e.g. children’s needs for higher education and marriage
• The tax implications of the investments
• Your housing needs
• Your life insurance and health insurance needs
Creating a Customized Retirement Plan
Since every individual has a different approach to life and priorities, an off-the-shelf plan or a standard one-size-fits-all approach cannot work to meet one’s unique needs. It is therefore important to create a customized retirement plan to your specific life goals; it does not matter if you are starting your career, planning retirement, nearing retirement or already retired.
The Indian Context
According to the recently released Principal Financial Well Being Index, Indians continue to put their family responsibilities first as Children’s education (61%), buying a house (52%)and children’s marriage (42%) are still the top 3 financial priorities. Alas, investing for your post-retirement financial requirements does not seem to be a priority for many with the result that after the house has been built and children educated and resettled after a big fat wedding, many Indian couples finds themselves financially strained than they were in their working years. Therefore, only a holistic retirement plan that takes into account your life-stage goals and family responsibilities in addition to your post-retirement needs is the way forward.
It is never too late or too early to create a plan to start saving and investing to generate an income that allows you to enjoy a lifestyle you are accustomed to even when there is no salary at the end of the month. In fact, to leverage the power of compounding, you must start saving and investing in a retirement plan as early as possible.
A professional retirement planner can help you define your dreams, develop a plan to help you realize those dreams, build for contingencies and monitor your progress along the way. It is important to look for research-based advice and trust-led services with the proficiency of professional retirement planners to make the right investment decisions.