Retirement planning is one of the most important part of total financial planning of an individual. Retirement years are the beautiful years of life. After taking his education when an individual starts his working life, he is burdened with lots of different responsibilities in his life. But retirement years are the years when one can live life that he wanted to live. At the same time, in retirement years when once physical and mental ability is continuously deteriorating, so in such times certain expenses like need for driver, servants to help increases so importance of having sufficient financial resources is very important. As a financial advisor I handle many clients and see that people don’t plan their retirement years seriously. So let us first see some aspects why retirement planning is must.
Changing Socio Economic Structure of Our Society: Socio economic structure of our society is continuously changing. We never saw our parents planning for their retirement years so precisely, because they believed that their kids are their retirement planning. Till now we have seen a joint family culture and the relationship between kids and parents in our country has been such that if you ask parents what corpus they have accumulated in their life they will say that their kids are their real wealth and they (kids) will take care of them and on the other side kids were also comfortable taking care of their parents in their retirement life but slowly and gradually we are adopting Western culture, joint family culture is ending so I believe that going forward this will change and parents will not be comfortable giving their financial burden to their children and kids may also not be comfortable taking this burden. So with this change our dependency to our next generation can lead us to miserable condition in retirement years.
Recent case of Mr. Vijay Pat Singhaniya (Chairman of Raymond group) who after his retirement handed over his wealth to his son is suffering from financial crisis in retirement years, is a live example for this.
Increasing life Expectancy: In 1947, when India became independent, it was said that life expectancy was around 49 years which kept increasing and current figures suggest that life expectancy is currently around 71 years due to better living conditions and advancement of medical facilities. But this figure of 71 years is an average which includes people from rural areas and people who live below poverty line and don’t have proper medical facilities, so actually for people like us who are health conscious and live in urban areas with good medical facilities; life expectancy is more than 80 years. So due to increasing life expectancy dependent years are becoming longer and we need to plan for that otherwise our old age can become miserable part of our life. Generally when we plan for Retirement, we take life expectancy at 90. If we consider our working life from 30 to 60 and our Retirement life from 60 to 90, during our working life every year we have to earn for almost two years, first for the year in which we are in working life and second for one year in retirement phase. For example, a person who is 35 he is also earning for his 35th year of life and also for one year of retirement phase which he has to fund and there will be no income. Following image gives more clarity about that. Generally investors don’t consider this fact..
Improving life style: Our life style has been continuously improving due to which our cost of living is increasing. Our earlier generations had a very contented and satisfied life style. Their cost of living during their working life was also not very high so needs in retirement life were also limited, against that we are increasing our life style very fast during working life itself so once the cost of living is increased during working life it has to be maintained for retirement life too. Famous Tennis player Boris Becker who lived a lavish life style and now suffers from the Bankruptcy post his retirement is one such real life examples of lavish life style and poor retirement planning which resulted in crisis during retirement years.
So the above aspects clearly show that to enjoy our retirement years we need to plan them properly. Now let us see some research and data about retirement planning
Research says that 47% of working population in India has either not started providing for their retirement years or due to some or other issue have stopped providing for retirement years ( according to report of HSBC). So Let me ask this question to all of you. Have you started providing for retirement years? Also have you actually prepared some written Retirement plan? Kindly check your financials and answer yourself for this.
Let me clarify that Retirement planning doesn’t mean that you will stop working at 60 years of age. You may continue to work for whole your life but if you have proper retirement plan in place you are not bound to work for your financial needs. You will work at your choice.
Here I would like to end this with conclusion that Retirement Planning is very important and one must have his written Retirement plan in place. In my next article I will be writing more on numbers and ways to Plan for Retirement..