Will we ever retire and do we need to plan for that?

retirement

“Its not your fault, if your are born poor. Its definitely your fault if you die poor”

                                                                                                                        – Bill Gates

We work as if we never retire. We spend as if we never retire.  We don’t think about retirement. So, we don’t plan for retirement.

It is said that “Retirement years are the Golden period in everyone’s life”. We can pursue our hobbies, we can travel around the world, do things we love… But to do all these, we need 2 things. First is Time and second is Money. We will have enough time post-retirement. But, what about money?

We don’t get regular salary post-retirement. Hence, we should have some alternate means to generate income for monthly expenses, to pursue hobbies, to travel….

We don’t get pension after retirement. Some of us may say that our children will take care of our expenses. But, all these years we have been giving money to them, so can we start taking money from them post-retirement. There are no Joint families now. And who knows where they will settle down. They may be on Mars and you may be on Earth.

“Parents are not your emergency fund; Children are not your Retirement Fund”

It means that we need to build a Big Fund which can be used post-retirement. If we don’t build, then we will be forced to work even after 60 years. Do you really want to work after 60?

We will see what would be the Fund size required.

For example:

table-1

table-2

Yes, a 30-year old will need Rs. 13.13 Crore at the age of 60 when he retires to meet basic expenses post-retirement. For travel, hobbies, life style inflation, eating outside, medical expenses etc., he would need few more Crores.

All this may appear shocking now. But, when it happens, there is little we can do about it. Hence, its wise to plan to save for our Retirement fund from now on.

For example if he/she starts to save for retirement at different ages, have a look at the table below.

I am giving so many figures not to confuse or frighten you but to give you a realistic picture.

table-3

It is very clear from the above data that:

  • The earlier you start, the less you need to invest p.m to achieve the Retirement Fund.
  • The more the rate of return, the less the amount to be invested p.m to achieve Retirement Fund.

So, start early and invest in Financial products that deliver high returns.

Life expectancy has been increasing by 5 years every decade. Now, life expectancy in India is ~ 75, which means after 30 years, average life expectancy would be ~ 90. Increase in life expectancy is due to advancement in medical facilities, immunity due to vaccinations, reduction in infant deaths etc.,

The more the life expectancy, the more the no. of years you have to survive without regular income post-retirement.

Life expectancy in Japan is 100. India may reach that no. in next 50 years.

Conclusion:

  1. Start investing towards retirement ASAP.
  2. Invest in products that give high returns. One such product that comes to my mind is the retirement fund offered by Mutual funds, which can deliver returns of ~ 16-20% p.a over long-term.
  3. HDFC Mutual Fund has come up with a Retirement Fund on 05th Feb 2016 and the NFO closing date would be 19th Feb 2016. You may choose this fund to save for your retirement.
    1. You can invest during the NFO period from 05th Feb to 19th Feb and even after the fund is listed, which will happen in 7 – 10 days after 19th
    2. Fund has a Lock-in period of 5 years and the amount you invest is eligible for Tax Saving u/s 80(C).
    3. You can invest through SIPs or in lumpsum.
    4. Don’t remove the money from the fund until you retire or reach the age of 60 because if you keep taking money out, then you will not be able to accumulate Retirement Fund.
  4. Avoid products that give returns of ~ 8 – 10% while saving for retirement. Products to avoid are PPF, NSC, NPS, FDs, RDs, Bonds, Insurance policies, Pension plans offered by anyone etc., because they can’t even beat inflation in terms of returns.
  5. If you need any personalised calculations for Retirement Fund or for any other goal, i will be happy to help.
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