How would it feel to live without a salary for 20-30 years? To be precise, that’s what retirement is all about! A recent HSBC survey report titled “The Future of Retirement: Healthy New Beginnings” cited financial worries as the biggest hurdles on the path to retirement for many Indians. One reason for this is that one may have planned for almost every goal in life except the last and most crucial one, that is, retirement. It is generally observed that Indians save for the house, children’s education and marriage. However, when asked about their retirement goal, a typical response is ‘dekha jayega’, which seems like there is no urgency. Perhaps they expect their children to take care of them or assume that their EPF corpus would suffice. But if you calculate the approximate amount of money needed to lead a stress-free retirement life, you’ll see why planning for retirement is just as important as it is for other goals. Similarly, while you have been planning your retirement, you may have also believed some of the myths.
A lifelong process
Retirement is often treated like a long vacation, which it is not. How can you be on vacation for 20 years of your life? Certain retirees often experience alienation in their retirement after the role of co-worker ends. They don’t feel productive and feel disconnected from their lives. Some look to their communities for support or try to find light work to feel productive. Therefore, retirement is not a long vacation for the rest of your life. It has various phases and people keep thinking of various ways to fill their life and time with productivity.
Save, invest when you earn and spend when you retire
In fact, we encourage you to keep saving and investing for your retirement. It is simply so that you can be relatively free from financial burdens. Does that mean you’re still spending? Even in your retired life, you have a future to consider, bills to pay and expenses to cover. You may have a large enough corpus to meet your needs for the next twenty years, but can you say that you will be able to cover all the unplanned expenses? Pulling out doesn’t give you the free ticket to overspend.
If saving is a habit that you have instilled all your life, there is no reason to stop now. If you have a substantial retirement corpus, you won’t use the entire corpus at once. So keep a portion invested by making sure the funds are not sitting idle. If you also generate complementary income doing some part-time or consulting work or have rented a property, they are adding to your corpus. Therefore, you could also keep those invested. Just because you stopped working doesn’t mean your money has to.
If you don’t have enough you will continue working
With such rapid changes in technology, many types of work have become obsolete. By the time you retire, the work you’ve been doing may become obsolete. So finding a job that’s right for your skill set could be challenging, especially when companies are looking to hire young workers. So instead of relying on work, rely on your current income to generate future income. The future may be uncertain, but the present is not. Your salary comes in every month; you get an annual bonus and pay increase too. Start your savings and investment for retirement. Don’t get the illusion that today you can be frivolous and keep working because you don’t plan to retire anyway.
Get out of the estate for or after retirement
One of the biggest myths surrounding retirement planning is the scary looks you get when you advertise that your retirement planning corpus is invested in stocks or equity-oriented mutual funds. The silence seems to convey that she might as well have lost the money. There are taboos around stocks that have led people to believe that stocks are unsafe and volatile. Risky is the job you are looking for and not the place where you would invest your retirement capital or savings.
You couldn’t be more wrong! Stocks or stock-oriented mutual funds are the best instruments for long-term investments. It is true to a certain extent that short-term investment in equities does not give the best returns but they have been the generators of the highest returns in the long term. The long-term period reduces volatility and also increases returns. So if you plan to start investing for your retirement, stocks should be your priority, as you benefit from the time value of money and the power of compounding.
You will need 80% of your pre-retirement income to live on
You’ll have to pay less in taxes, hopefully you won’t have to pay off loans, you won’t have to save for specific life goals, you won’t have to save for your children’s education, etc. All of your major life expenses have been covered by the time you retire. You only have to bear the costs of living and for everything, you will have your corpus. This is not to say that you shouldn’t try to invest and save as much as you can for retirement. If you haven’t managed to build a corpus that is 80% of your pre-retirement income, you do have to worry about not making a living. Everyone has their own set of expenses and lifestyles, and no one can accurately predict the percentage of pre-retirement income that will suffice. However, the idea is simply that when your major expenses have been taken care of, then less is more.
Pay off debt and education loan before retirement savings
Many of us tend to believe that since retirement is so far away, we can start planning for it much later. This is a costly mistake one makes. By starting early, you can start small and reduce the financial burden later. Many investors prioritize paying off debt and the education loan before they start planning for retirement. They tend to treat retirement planning as a secondary goal compared to paying down debt. At this stage, you simply need to remember that a person who cannot help himself is no good to others. So bust the myth of planning for retirement later and start now along with your various debt payments.
I’ve often said this, but I’ll say it again: Retirement is that one goal you need to plan for. For any other purpose, you have the option of taking out a loan and paying it back with your future income. Retirement simply doesn’t allow you that luxury. You have to do the best with what you have saved and invested. Hence, do not fall for these myths and create a setback in your retirement planning. For the best advice, you can always consult a financial advisor.
(The writer is the founder of Money Mantra, a personal finance solutions firm)
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Posted On: Sunday, January 23, 2022, 07:00 am IST