What does the word ?retirement? mean to you? Is it the time to pursue your unfulfilled passions, travel to places you always wanted to explore, or is it the time to take respite from your stressful life. Each one of you could have your own plans.
The first question is at what age do you retire? The time when 58 or 60 was the age to retire is a thing of the past. Is the end of permanent employment the beginning of retirement? So, when does one?s retirement phase sets in?
If you have sufficient cash flow over indefinite period, with or without regular income, to sustain your lifestyle, then you can retire. Here we are not talking about wealth, assets or regular employment, but cash flow, which is the key.
If your assets are in an illiquid form or in litigation, they can spoil your retired life. What use is your assets or monies if you cannot use them. So, remember that cash flow is the essential factor. Once you are accustomed to a lifestyle, it is difficult, if not outright impossible, to switch to a lower level.
Current scenario
Today, a typically retired government employee gets monthly pension. Some have investments in fixed deposits, senior citizen saving schemes, post office schemes, and in few cases derive income from with mutual funds. Investment in real estate, which have appreciated multiple times, is also part of the asset. Will this be the scenario 10 years from now? With the opening up of the Indian economy in the nineties, the employment opportunities in the private sector have grown.
When to plan?
Right now. Yes, right now is the time to plan for your retirement, in case you have not done so yet. Ideally speaking, the best time to plan is the moment when you enter your working life.
Is planning for retirement different from planning for your other goals? The answer is both yes and no. No, because the rules and processes are the same. Yes, because you are looking at a time horizon post your gainful employment years and the need for the cash flow to sustain your lifestyle. There is no right or wrong method to plan for the requirement corpus. One way to plan is by assessing your current monthly expenditure after deducting rent/school fees/children education, etc. Determine your and spouse?s life expectancy, the inflation rate,the rate of return and the asset allocation. After taking a note of these factors, zero down to financial products and review and rebalance the portfolio. Do understand that you are looking at leading a life with the current creature comforts post retirement for two to three decades. And during this period, you can be expected to buy appliances and gadgets, go for vacations and medical emergencies. So do factor in these cases too.
The way forward
Failing to plan is planning to fail. Now that you know that you need to prepare for your retirement, one can use the methodology stated earlier or you could sit with your financial advisor and plan for the same. But do plan, and then execute as it is important for you to lead a respectful retired life.
Once the financial plan and strategy for retirement is in place, you should choose the financial products for reaching your goal. The financial products should actually fit into your plan, and it shouldn?t be the other way round.
Again, depending on your risk appetite, you can choose a long-term systematic investment plan of mutual funds. You could also choose an annuity cover. You could choose a combination of mutual funds, annuity, direct equity and precious metals.
The asset allocation will again depend on your risk appetite. So, there is no one way or method. The products can vary. But do remember, execution is the key. The retirement corpus generation is a journey not a destination. There will be volatility and you should accept volatility as the new normal. Have patience. Trust yourself and the method. If a mid-course correction is required, do not hesitate.
The author is founder and managing partner Zeus WealthWays
Future perfect
* If you have sufficient cash flow over indefinite period to sustain your lifestyle, then you can retire
* If your assets are in an illiquid form or in some kind of litigation, they can spoil your retired life
* Ideally speaking, the best time to plan is the moment when you enter your working life
* Once the plan and strategy for retirement is in place, you should choose the financial products