By 2040, it is assumed that among individuals who reach age 65, average life expectancy is projected to rise from 82 to 85 for men and from 85 to 88 for women.
By Natika Poddar
At the turn of the 20th century, the average life expectancy was 55-60 years. Today, the average Indian can look forward to about 75 years of life. By 2040, it is assumed that among individuals who reach age 65, average life expectancy is projected to rise from 82 to 85 for men and from 85 to 88 for women. Here are some factors to keep in mind while doing retirement planning.
Start preparing early
Once you know what you want to be do, it is time to figure out how much you need to do it. Run some numbers using the retirement planner free software’s available on internet considering your expenses after the age of retirement.
It is true that once you retire you will say goodbye to some key expenses. Your loan expenses may end soon, if it still exists. You will not spend much on clothing and travelling. It is assumed that you will spend far less than at present when you retire. However, some costs may increase like recreation, health etc.
Map out your projected expenses to reflect your unique circumstances. No discussion around living in retirement is complete without factoring in inflation. Despite a global economy that appears to be tilting more towards deflation, the reality is that the cost of living is still increasing. Even a slow rise in consumer prices can put a real dent in your purchasing power over time. So consider Time Value of money factor while evaluating retirement corpus.
It is never too late to decide on investment planning and wealth preservation would be ideal rather than growth. An individual should move from small, mid cap funds to large cap funds, large cap funds to balanced funds. If one has many years for retirement, then he can look at more risky investment in the portfolio. As the time for retirement nears, the share of equity investment should come down and the share of fixed income funds should rise.
Typically, for most investors, emotions tend to follow stock market cycles. When stock markets perform well, we tend to become confident and pour money into stocks. When markets turn down, our emotions change and can cause us to pull out of the stock market just as it reaches its low and miss out on potential gains as it rises again. Sometimes emotions cause us to do just the opposite. Also, with growing age, invest in 2-3 funds rather than 4-5 funds.
Health care and uncertainties
Even if you construct a smart saving and investing strategy, unexpected events can occur. You could experience an illness that can prevent you from working and earning. Or your home could be damaged in a storm. You need to protect yourself against the risks in today’s world. You can evaluate your personal situation and line up the right levels of protection, whether it is disability income insurance, long-term care coverage or auto, home and life insurance policies. With sufficient protection, you can focus on the fun parts of planning for the future without having to worry.
The best time to start to think about your retirement is before your boss does. It is never too soon to think about retirement planning. Its never late to think and act on it.
(The writer is associate professor, Finance, St. Francis Institute of Management and Research, Mumbai. Viers are personal.)