RETIREMENT PLANNING

We are living in a consumer driven society, where we believe living in present and do not worry about future. We earn high income; spend lavishly elevating our status in the society to a level which may make jealous our peers, friends, relatives and everyone else. But the question is will the things remain same forever?

Let’s consider a simple human life cycle. One attains and completes formal education till 20-24, after that he starts earning. If he is fortunate enough he gets a good package and advances through the career. In between he is married, has child their education and several other responsibilities, as he has good income so he does not feel financially burdened by these things. But there is a stage where his earning capacity starts declining, for many reasons as his health, company policies, competition with younger breed and others. So at such stage maintaining existing lifestyle with decline in income becomes practically unfeasible. In our society we call this stage Pre retirement stage, and this stage of life is universal irrespective of who you are and where you are, the only thing that can vary is age, which has come down drastically with changes in economic and global system.

Some may argue that their children will take care of them after retirement. But way the society has gone under transition; from joint to nuclear families, the people desire to live independently and expanding geographical boundaries can you afford to rely on them. Question is what if they don’t?

Besides this there has been a change in job system as compared to 20 years ago. The obvious reasons are opening of Indian world, which has given rise to MNCs. This has lead to higher income, better pay packages but on the other hand carry high job insecurity, no pension or provision after retirement unlike government jobs. So it becomes necessary to plan for retirement in golden days so that you don’t have to regret later on.

So one should create enough provision during accumulation stage so as to generate income post- retirement so as to maintain the same lifestyle without compromising his dignity. Some of the tools for planning the retirement are:

1) Traditional methods: With Traditional investment options like PPF, EPF, gratuity etc. one has good option to build corpus, along with tax advantages. These instruments are safe with good return. But downside is that they may not fulfill requirement because of limitation on both investment amount and as well as Investment Avenue. However these should be a significant part of one’s overall portfolio in order to reduce risk and provide stability.

2) Insurance plans: Insurance industry plays a significant role in overall Indian financial sector. It several schemes and plans to suit the specific needs of person, such as ULIP,

Term plan, Endowment policy, whole life policy and others. But from the retirement point of view one can use Endowment plan or Pension plan. Endowment plans provide dual benefit of protection during policy term and cash value on maturity, which can be used during retirement. Pension plan provides annuity at regular intervals after defined period which can be a source of income later on. But it is advisable to Judge the suitability of scheme to your need and requirements, after thorough analysis and if required take help of a competent financial expert.

3) Rental Income from property: It has been a recent trend in India to invest in property, people generally purchase plots at many places with the hope of selling it at appreciated price because of belief that property rates will always go up. But this could strategy could be disastrous if there is no buyer as happened in Subprime mortgage crisis US. A better alternative is to invest in Commercial properties as malls, office space and have rental income, with considerable low risk. But as advisable one should properly analyze his need and requirement and take the help of expert before taking a decision.

4) Mutual fund: Mutual funds can be a very useful tool for investment purpose because of their range of choice, professional management and liquidity. They can be either market linked, fixed securities linked or both depending on the investment objective of fund. With disciplined and consistent approach one can build good corpus to take care of retirement needs.

These are some possible alternatives where one can invest over a period of time, to build required corpus before retirement. But one should use all the tools in balanced way so as to reduce risk and generate enough return to beat inflation. Besides this one should analyze his needs and requirements keeping in mind all the factors like Inflation, Post tax return. As it is advisable not to put all eggs in one basket, therefore one should diversify his portfolio in order to generate returns as well as to have stability. Besides we should use god’s most gifted possession - Intelligence. In our whole life we plan each and every part of life right from education to career, from buying house to car and everything than why should we not plan our retirement which is the only period where we live for our self and not others. With no provision for Post retirement period one is devoid of all the pleasures and is bound to live a life of misery and sorrow. To sum up one should plan future from present, there is no right age to start it but the early you start better are the chances of reaching your required goal. One should use all the parameters keeping in mind like inflation, taxation, deductions, and exemptions and then plan accordingly. Besides this with growing complexity one could utilize services of an expert who should proper experience and knowledge of that field.