Retirement Planning- The Strategic Approach To Happy Retired Life

“ With the advancement in  scientific technology, innovations in medicine, and happiness indexes, the average human life expectancy has been prolonged, and our Retired Life  is quite longer than we imagined it to be.”

Everybody dreams of a beautiful, serene life full of roses and doves when approaching the golden years of life. So many of us are quite relieved by the fact that this day seems quite far away from our present reality. But little do we know that we are rattling at a faster pace towards our Retirement than we primarily imagined.

As per the recent data from the Ourworldindata.com, the average life expectancy for India is around 69.7% by the year 2015, which is an increase of almost 15 years from what it was originally in the year 1960s.

Life Expectancy India- 1960- 2015

Source- Ourworldindata.com ( https://ourworldindata.org/grapher/life-expectancy-at-birth-oecd?tab=chart&country=IND)

This inclusion of a longer lifespan opens a new, great, and unanticipated  ocean of possibilities in front of us. One of them is the increased span of retirement  that is gradually approaching us briskly. Majorly implying the fact that we need to put in additional efforts in planning our retirement more prudently, and devising a Grand financial plan that maps all our required expenses to sustain us lavishly in the post-retirement state no matter what the situation is. 

Thus, our retirement planning needs to be concrete-proofed to protect us against all the prevailing discrepancies and problems that have the potential to blow our picturesque retirement into a million pieces.

"Give me six hours to chop down a tree and I will spend the first four sharpening the axe"

This famous quote by US President Abraham Lincoln rightly lays out the importance of planning for the future. Taking his personal life into consideration, no other US president had ever faced a series of challenges as presented to Abraham Lincoln. 

Had he not judiciously spent time planning and placing sensitive pieces in his corner, it’s possible that we would be living in a very different world today since US politics has always had a major influence on the world socially, politically, and economically.

Keeping this excerpt in mind, you need to work ahead of time to lead a life you only dreamed of. Thus, retirement planning should be your topmost priority, and you should never neglect the time and effort necessary for due diligence before action, because every today has a tomorrow, and you need to be prepared to enjoy that tomorrow, not repent it due to a lack of proper planning.

Who Should Plan for Retirement?

To retire means to rewind, relax, and rejuvenate in the most cherished years of your life.

But the question we usually ponder over is whether retirement is a need for all. Yes, it is imperative for all to plan for their retirement.

Many people have this conception embedded in their minds that merely salaried individuals should plan their lives ahead as they might not get a hold on the required supply of income once the faucet of regular income has been turned off. It is a fact that salaried individuals who have mandatory  Employees’ Provident Fund  might still have some corpus, though it is highly inadequate to fund the lavish lifestyle each one of us has envisioned for ourselves to rely upon post-retirement. Let’s see how each individual irrespective of his work/profession needs a definite Retirement Plan:

• Non-salaried/Self employed individuals- Professionals such as Actors, Athletes, who are mostly working on an assignment basis or have a confined lifespan to their careers needs to think very critically on how to suffice the needs of the Retired life. Proper planning in the prime years is the right step for secure the future.

• Salaried Individuals- Salaried Individuals who are either in government jobs or in private sector jobs will also need regular income once they retire. For most government employees the provision of pension is a source of some income, however this is not available for the private sector individuals. Moreover, the pension fund also might not also bear the burden of all expenses of the old age. 

• Business Owners- For people running their own business, the need for a corpus to support the family is there once the business owner retires. Though businesses usually pass on from generation to generation, still the ups and downs in a self owned business might put a huge burden on the shoulders of the bread earner of the family. Hence the need for proper planning and a good retirement corpus is a must. 

Different phases in Retirement Planning

Accumulation Phase

The phase of Retirement planning that includes a time period when an individual is currently earning, saving and investing to build an adequate corpus by the time of retirement is usually coined as the Accumulation phase. Simply put, the time from the beginning of your career till retirement is included in this phase.

The major objective of this phase is to fatten the kitty, in this case to expand your limits to maximise your retirement corpus to enjoy a jolly, resplendent and peaceful life post-retirement. As the popular saying goes on “The beginning is always NOW”, one must always strive to fulfill this accumulation phase sooner than emancipated as an early planning can provide you the needed jump-start to land a better yielding time for your investment with the magical power of Compounding and debark the benefits in the form of preferable Retirement Corpus. 

In this stage, an individual undergoes a plethora of thoughts which include the following:

• How often should you choose to save for retirement?

• How much should you choose to save for retirement?

• What investment vehicles  you choose to use?

• How do you wish to diversify your financial holdings?

• And countless other investment variables that keeps fluctuating with different mindsets and market conditions.

The moment an individual comes across their first investment for retirement marks the onset of Accumulation Phase of every individual’s Wealth Creation journey. Now this age might vary from an individual to another, for some it may be as soon as their 20s and for some it can also mean planning just before the party pops in their late 40s. This age remains a variable factor that largely influences any individuals post-retirement corpus. The better understanding of this accumulation phase is the key to maximise your Retirement corpus and lead a content life during your twilight years. 

Although one cannot always predict the numerous possibilities of either a fortuitous future or a rather abrupt future. However, one can always prepare in advance by analyzing their financial goals with a finance expert to plan ahead by including expectations for items such as inflation, market declines, health care etc to keep you on the right road ahead and lead them to euphoric elysium.

Some of the good Investment options in this phase are:

1. EPF:It is a government-sponsored savings plan aimed at organized-sector employees. It is a retirement scheme that falls under the EEE (exempt- exempt- exempt) tax category. It is the major scheme that falls under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, and is governed by the Employees' Provident Fund Organisation (EPFO).

2. VPF:VPF is a traditional savings plan that falls under the umbrella of provident funds. VPF, however, allows for a fixed contribution amount made to the scheme on a monthly basis to be decided by the contributor.

3. PPF:PPF is another option that is popular with risk-averse investors. It is a great Tax-saving investment option. PPF offers a lock-in period of 15 years and gives an option of extending your account in 5 years. It is a great option for salaried people as it offers a greater interest than Fixed Deposits. For salaried individuals who often consider FD’s a great option, PPF is a great option and usually provides higher returns to FD’s.

4. National Pension System:The National Pension Scheme (NPS) is an Indian government-run programme for subscribers to provide retirement benefits. On average, NPS offers a 9–12% interest rate per annum on the contributions made for the current fiscal year.

5. Systematic Investment Plan (SIP's) in Equity Mutual Funds: Regular investment of a smaller sum helps in gathering a substantial amount of corpus by the power of compounding in the long run. It is rather simple and convenient route into investment discipline to fulfill your long-term financial goals and is used as a good accumulation investment option.

Distribution Phase

This Phase in Retirement planning begins with the onset of your RETIREMENT.

Post-retirement, an individual faces his worst nightmare; there comes this time when you no longer possess a continuously flowing stack of money, or in simpler terms, you do not have a hold over a regular source of income post-retirement. This is the point in life, an individual is solely dependent on the investments they made during their investment years and reap the benefits of that prudent investment made, which is more than capable of funding our needs for our remaining life and of accommodating our imagined fancy lifestyle with numerous arousing desires. 

A sudden shift from the Accumulation phase to the distribution phase might seem tricky when the paychecks stops coming by, and you find no other source dripping any additional income. Although we cannot rewrite our life’s history what could be done is to plan prudently during our Accumulation phase to amass the rewards of your retirement planning efforts. Our monthly social security benefits, potential pension corpus and planned income are all supplements from the multi-hued investments that we made our younger/ investment years. Some of the good Investment options in this phase are:

1. Senior Citizens Saving Schemes: Senior Citizens Saving Scheme (SCSS) is geared towards senior citizens over the age of 60.s. Long-term savings can provide a steady income stream while saving taxes for the investors.

2. Systematic Withdrawal Plan (SWP) from Debt Mutual Fund: SWP (Systematic Withdrawal Plan) allows investors to withdraw a predetermined amount from their existing mutual fund investments at predetermined intervals (i.e., weekly, monthly, quarterly, semi-annually, or annually).

3. PMVVY(Pradhan Mantri Vaya Vandana Yojana): Pradhan Mantri Vaya Vandana Yojana is a retirement scheme offered by the Government of India. Under this scheme, investors can avail of regular pensions from it and are guaranteed a rate of return on their investment, regardless of the frequency be is monthly, quarterly, or yearly.

4. Immediate Annuity Plan: An annuity is a pension plan that helps you to get lifelong, regular, and guaranteed income post-retirement for life against a lump sum investment. In an immediate annuity plan, income starts rolling immediately after you invest in an annuity plan.

5. Floating Rate Saving Bonds: Floating Rate Savings Bonds are Debt Instruments issued by the government that provides an investment option that is tailor-made for risk-averse investors and investors looking to diversify their portfolios. They provide a source of Fixed Income to Investors with periodical and regular income in the form of interest pay-outs. These floating-rate savings bonds are fully taxable, non-tradable, and transferable to the nominee.

A famous quote attributed by the former US President Dwight Eisenhower goes by, “A plan is nothing, but planning is everything”. This quote seems to be monumental in terms of planning your Retirement. A financial plan that you have drawn up today may not be particularly relevant or might not align accurately with your financial goals at the given period of time. However, after 10 years, we might find ourselves in the most gleeful hour. This may be the case when the facts become clearer in hindsight that our Financial portfolio is flourishing immensely despite the ongoing discrepancies, economic situation, inflation etc. What is essentially required is a constant, ongoing process of reviewing what you have saved and invested vis-a-vis what you need and that on-going process is what retirement planning is all about going parallel.

The need for an  Early Retirement Planning 

The idea of early Retirement Planning is getting popular day by day, and this is not because it is some trending term it is because of the value that planning early adds to the retirement corpus. And planning this is also not difficult but is definitely strategic. The first step is to decide an age when you want to retire say 50 years, to ensure you do not run out of money. Basis that the amount to secure these years can be calculated. Once this amount is correctly estimated then comes the task to plan the savings and investments to reach it in the given frame of time. Timely portfolio reviews and re-balancing are then needed to remain on track for the happy journey to the golden years.

Retirement investment portfolios today are no longer designed to get you to retirement; they must endure retirement.