Have You Planned For Your Retirement Well?

Hemant Rastogi
Chief Executive Officer, Wiseinvest Advisors

Retirement planning is one of the most important goals for every investor. However, not many investors plan for retirement in a manner that can ensure a comfortable retired life for them. It is also quite common to see investors delaying their investment process for retirement as they think that they have enough time on hand to do so.

Needless to say, goals like children’s education and marriage as well as buying a house remain their top priority and hence retirement planning doesn’t get attention it deserves.  

Then, there are those who do realize the importance of planning for retirement, but often get overwhelmed by the very thought of having to build a large corpus. Unfortunately, despite having the ability to invest some money on a regular basis, they do not start investing, thinking that they require a large sum of money to begin investing for the goal. In reality, even if one starts investing smaller sums on a regular basis through SIP in an asset class like equity and continue the process un-interruptedly over longer periods, a combination of healthy returns and power of compounding can produce amazing results. 

There are also investors who feel that amount accumulated through provident fund and gratuity will be enough to generate adequate income during their retirement years. Clearly, they underestimate the impact of inflation on their expenses and often struggle to generate enough to fulfil their requirements. It is quite common to come across people who feel that even if there is a shortfall, their children will provide for it. While it can be passed off as a natural instinct of parents, not having enough can result in compromising with one’s dignity and needs in these important years of one’s life. 

The moot question, therefore, is how should you go about planning for your retirement. As is evident, retirement planning is an important goal of your  life and hence it should be given its due in your investment process. Ignoring  this important fact either by compromising on returns or not planning the process properly can cause disappointment for you in more than one ways. Besides, don’t make a mistake of withdrawing amounts during your corpus-building process. While at times it may be necessary to do so, making it a habit can negatively affect your retirement.

It is important to make some smart money moves which involves budgeting and looking beyond traditional investment instruments like FDs and small saving schemes and real estate to give yourself a chance to accumulate more and earn positive real rate of return i.e. gross returns minus taxes and inflation. No doubt, there are attendant risks of investing in market-linked products, but these can be mitigated by following an asset allocation strategy  and a disciplined investment process. Once you reach closer to your retirement age, it would be prudent to rebalance  the portfolio in a phased manner to make it fit for income generation as  well as generate growth after  retirement.

Remember, tax efficiency of returns can make a huge difference to what you get to keep when you retire and hence it is always advisable to opt for tax efficient investment options like mutual funds. Mutual funds offer options to save taxes at the time of investments as well as offer tax efficient returns. For example, an investment option like ELSS allows you to save taxes under section 80 C and also provide tax free returns.

Then, there are a few retirement funds that offer the same benefits. In fact, these funds also allow you to rebalance the portfolio at a later stage to protect gains and offer option of a Systematic Transfer Plan (STP) to generate regular income. This is significant as it removes uncertainty over receipt of a certain sum of money every month, despite being invested in market-linked products. 

Last, but not the least, you must have a life cover till you retire to ensure that in case of any unfortunate event, those who are financially dependent on you do not suffer. Any disruption in income during accumulation stage can seriously impact financial position of the family and hence risk management in the form of life cover has to be given topmost priority. A term plan is certainly the best option as the focus should be on the quantum of life cover and the cost involved.