The retirement visuals one sees on television may or may not be the real picture. I have come across instances where people want to quit a corporate career at 45. In India, except for government employees, social security of citizens is not taken care of unlike in Europe and in the US. Citizens have to take care of their retirement needs themselves. Let us say one starts a corporate career at 24 and retires at 58 or 60 years. With increased life expectancy and better healthcare facilities, one can expect to live longer. In this case study, we are looking at a post-retirement life of 15-20 years. Have we thought about this? Do we have a ballpark estimate about our financial needs? Are we pushing this off to the last five years of our working life or are we trying to shrug it off? Well, we can make our journey towards financial independence for meeting our retirement needs in a more organised manner.
Have a plan: Everything is initiated with a plan. Note your income and expenses and analyse which expenses you?ll continue to incur after you retire. (Do note the number of years you?re away from retirement). Add inflation (say 6%) to the amount so arrived and estimate the return (say 10-12%) which you would expect. Deduct the corpus to be accumulated via PPF, EPF or any other investments, the remainder is the corpus you require. After having calculated the corpus and the time horizon, look at your risk profile and invest the amount in the financial products that help generate returns. Most importantly, invest in financial products.
Inculcate savings attitude: In the book The Richest Man in Babylon George Samuel Clason suggests that one needs to save a minimum of 10% of one?s income, which means that 90% of one?s income is available for expenses. This simple action kick starts the corpus creation. This does not mean one reduces the standard of living. It is only suggested that one does not spend beyond means.
Start early: This coupled with the power of compounding will create a corpus with a smaller sum. The graphic shows how starting early can generate the required corpus at less than half the investment as compared with someone who invests a decade later for the same corpus. Someone rightly said, ?In God we trust, for the rest we?ve data?. So, plan your retirement savings from the very first day you start your professional career. This small, but significant, action will go a long way in ensuring a better retired life.
*? The writer is founder of WealthWays, a financial advisory firm