Are you prepared for retirement?

Are you prepared for retirement?
Highlights

The first and foremost thing is that one should start saving early for the retirement. Also, one has to take into consideration the costs of living long as life expectancy has increased now.  The other important factor to be taken into account is the inflationary pressure that shoots up with every passing year. 

The first and foremost thing is that one should start saving early for the retirement. Also, one has to take into consideration the costs of living long as life expectancy has increased now. The other important factor to be taken into account is the inflationary pressure that shoots up with every passing year.

Retirement is also known as second innings of the life. The current generation has seen most of their parents retire from work life with a secure pension, which is again modified each time with a pay commission revision. Though, one might argue if it’s sufficient or not, there seems to a mental peace with a constant income flow. This is something the current generation could be deprived as they retire, including those of the public sector employees. This is because the govt. has moved to the contribution-driven pension plans i.e. the amount of the monthly pension is directly proportional to the contributions at the time of working and the rate at which it would grow.

So, unlike the earlier generation, all the individuals have to plan for their retirement income. Moreover, the life expectancy has increased thanks to the advancement in the life sciences. Living longer is no more a dream or a wish but it is translating into reality for most people. The increased living standards also accentuate for this benefit. But, how many of us are prepared to take on this challenge?

A global report on the future of retirement found some interesting insights on the preparedness or lack of it by Indians. Alarmingly in India, one in every seven (i.e. 14 per cent) of the working population expects they will never be able to fully retire. Though, the reasons are not completely of financial considerations but to keep them occupied and alert. Another important insight is that more than a third i.e. 37 per cent of the retirees in India regret not having a financial plan for retirement. Globally, in the hindsight, 36 per cent of the retirees regret to have not started to save early for their retirement while that of the Indians is a huge 47 per cent.

The report puts a majority (85 per cent) of the working population around the world say that the retirement is not their main savings priority while in India, more than a quarter of the surveyed (26 per cent) have prioritized children’s education as the top-most priority. Also, a same percentage of the surveyed in India were unaware of the amount needed for the retirement. This is a very disturbing statistic. Globally, the single most hurdle for the under contribution for the retirement planning is the clearing of an existing debt.

The first and foremost take away from this survey is that one should plan saving early for the retirement. Also, one has to take into consideration the costs of living long i.e. have to assume radically of living too long than they themselves anticipate for. The other important factor to be taken into account is the cost of living and the inflationary pressure that shoots up the overall requirement.

Significantly, planning is required such that the other goals like children education are also met but the allocation towards retirement remains prioritized. This is tricky balance to achieve and as it’s difficult to remain rational with these needs. It’s not just important to create a large corpus but derive a clear plan to generate income from this corpus for a longer period of time or till one lasts.

This brings on the forefront the need to plan the mortgages or avoid them if needed for a better future retirement. It’s always good to be associated with an activity or hobby post-retirement and mostly if it also generates an income but one can’t be very sure of one’s health. Overall a clear planning and execution is required to avoid retiring to be re-tiring.

(The author is a practising financial planner and could be reached at k.naresh.k@gmail.com)

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