Plan Ahead For Your Golden Years

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

"Planning for retirement can keep you focused on this very important goal of your life, and hence you must begin the process as much ahead as possible"

Everyone dreams of enjoying a comfortable retirement phase. Unfortunately, not many put in the kind of efforts required to make it a reality. Many investors delay investing for retirement thinking that they have enough time on hand to do so. That’s because most young people do not think about retirement, mentally or financially. In reality, for every 10 years of delay in the start of your investment process, you will need to invest three times as much each month to catch up. Then, there are those who prioritise short-term and medium-term goals at the cost of ignoring their needs during one of the most crucial phases of their lives. 

In other words, they start thinking about planning for retirement when they are nearing it. No wonder, they end up compromising their lifestyle after retirement. Remember, your saving and investment habits during the accumulation stage hold the key to how you would end up spending your golden years. Therefore, your investments must be prioritised in a manner that this important goal of your life doesn’t get sidelined. It helps to know that a few behavioural factors like lack of saving attitude, lack of knowledge about financial products and unwillingness to plan often derail investment during the accumulation phase.

Therefore, you need to work on these to get the best out of the accumulation phase. Planning for retirement can keep you focused on this very important goal of your life, and hence you must begin the process as much ahead as possible. Remember, a carefully planned investment strategy not only goes a long way in helping you identify what you need to do in the present to lead a particular lifestyle after retirement, but also in avoiding pitfalls in your retirement. Your retirement plan should take into account factors such as number of years to retirement and the corpus you would require to have a comfortable retirement phase.

There is also an ever-expanding segment of aspiring retirees who wants to retire early. If you want to retire early, you must plan for it since it will require substantial savings. It’s important because you will require a large enough corpus to generate income to meet your expenses to cover the period of traditional retirement age as well as the period after retirement. Broadly speaking, depending upon when one decides to retire, these two periods could add up to around 30-40 years. Therefore, it becomes absolutely essential to not only plan early but also save a substantial part of your income and follow a disciplined approach of investing. 

The question that you need to address is how much money would you need for early retirement? Usually, if you retire at the traditional age of 60 years, your post-retirement expenses could drop to around 70 per cent of the pre-retirement expenses. However, in the case of early retirement, you may need to provide for higher expenses. As is evident, planning well during the accumulation stage can help you accumulate the required corpus for your retirement. Similarly, your investments during the distribution stage also require careful planning. 

Considering that you would be required to generate regular income for a couple of decades and also tackle the impact of inflation on your expenses, the selection of suitable products and tax efficiency of returns would be crucial. In fact, an important aspect to generating some income – in addition to investment income – would be to figure out ways to monetise your hobbies or interest. A smart option like systematic withdrawal plan (SWP) should be considered for generating regular income. It not only allows you to invest in marketlinked products that have the potential to help you tackle inflation but also get regular income in a tax-efficient manner.