Retirement is a tough time for anyone. It brings a number of lifestyle changes. Usually, the immediate few years after retirement will be the most crucial of the entire period. As time passes, it is vital that you plan your spending in such a way that you have funds available to you to finance any health related issues in the future.
There are several reasons why planning for retirement is vital like any other goal. Here are some of them:
Shortage in employer funded pension/pension funds: The pension that one might receive from these schemes may not be sufficient to maintain your lifestyle. This need to be supplemented with self-funding – i.e. pension plans, senior citizen plans etc
Longer life: Our generation will live longer than previous ones because of improved medical and healthcare facilities implying the necessity to gather adequate funds that can sustain longer life. This also implies that the healthcare needs and expenses are likely to haunt us.
Lack of social security system: There is no social security system in our country. Thus one has to plan to build the entire amount to help meet the regular income or any contingency post retirement.
Independent lifestyle: Despite family support, many retirees don’t prefer depending on the relatives or children for meeting post retirement expenses. Maintaining independent lifestyle is sustainable only when backed with a financial cushion.
Wish to remain contributor: The desire to contribute to the family by contributing and supporting the kids or grand kids at milestones of their life remains even after retirement. This can be fulfilled only when one is financially self-dependent.
For refreshing holidays: After fulfilling all your responsibilities, you may want to build a retirement corpus to go on holidays and relax etc.
In order to achieve your retirement goals and objectives – you need to have the right amount of savings to take care of your regular needs post retirement. The savings should be good enough to take care of your regular expenses and needs after retirement.
Take the case of two friends Sameer and Atif. Sameer was working in a Bank and earned a decent salary, but Atif who worked for a Software firm had handsome earnings. Hence Sameer managed to save only half as much as Atif saved (i.e Rs 6,000 against Rs 12,000).
Sameer had a normal lifestyle and started saving at the age of 24, while Atif thought that investing is not important and postponed it until he reached 34. Both of them plan to retire at 54. Atif did not have any financial difficulty or lack of savings, but rather wanted to enjoy his earnings and life by spending on branded appearances, fancy motor bikes, expensive shoes, parties, etc. A good bank balance and salary enabled him to afford such a lifestyle.
When two of them decided to retire at the age of 54, Sameer ended up with a corpus of Rs 3 crores while Atif ended up with just Rs 1.70 crores. How was Sameer able to accumulate around double the sum accumulated by Atif? This is due to the power of compounding over a large tenure and a regular and disciplined savings.
If Atif had followed the philosophy that Sameer imbibed he would have ended up with Rs 5.49 crores.
Retirement is thought of as an old age phenomenon and things like pension, planning for future, etc are looked at as boring or old age philosophies. Although times have changed, some of the good virtues of saving early and consistently never change.
Why Sameer is better off and Atif is worse off?
Sameer will have a comfortable retirement and have the resources to manage the same or equivalent lifestyle post retirement. Atif will have a lot of hiccups post retirement, because he may have to sacrifice his lifestyle or curtail expenses. Even if one argues that Atif can make up in other ways does not work well because he is left with a corpus that is half as big as Sameer’s amount.
Thus, in rational terms Atif’s cost of living will have to be shortened to half as much as Sameer’s to help him to maintain his expenses. Keeping all other factors common or constant Sameer wins the race.
Reliable and long-term savings can help you build an amount for an easy retirement. Retirement is not just about age, it’s highly dependent on the type of lifestyle you’re living and your desire to continue such living.
The author is founder and CEO, PolicyX.com