Plan early to enjoy stress-free retirement

Anuj Agarwal

Retirement is inevitable for a working individual. You, therefore, must be prepared for it — mentally, physically and, of course, financially. The early planning is the key to have a stress-free life post retirement. So whether you are in the age group of 25-30 or 50-55, retirement planning is important.

Your choices, including day-to-day activities and ambitions, can help you lay down a solid foundation for your retirement. The retirement planning is a process in which an individual plans for the years during which he ceases to do routine work that generated regular income in the past.

One thing that is guaranteed to go up is the cost of living. A Morningstar report says the number of Indians above 65 years will cross 200 million by 2050, up from about 80 million at present. The average life expectancy is also expected to increase to 75 years by 2050 from the present level of close to 65 years. With advances made by medical science, you will probably live longer than what may be expected. How to manage then is the challenge we need to face now.

Gone are the days when people worked in a single job from cradle to grave. Due to sporadic job changes, the incomes of individuals are more volatile. Lifestyles are more expensive. Returns from various investments vary widely. Inflation is constantly reducing the purchasing power of your money. All these issues have created higher consciousness about retirement planning. So give your retirement plan the attention and importance it deserves.

Mantras for better second innings

Figure out the total amount you will need. Start by nailing down the annual income you’d like to have in retirement. Plan your budget according to your post-retirement needs especially if you have plans to do a lot of traveling or other expensive hobbies.

Figure out the right investment options. Assess the structure of your investments to generate regular income post-retirement. It is prudent to invest in the right mix of financial instruments (life insurance, mutual funds, gold, debt etc.) to accumulate the nest egg you’ll need. Investment in a health cover is critical, so that high medical expenses do not exhaust the savings in later years.

The power of compounding works when you are saving for your retirement. Consider these examples:

n If you invest Rs1,000 a month from the age of 25 for 35 years (assuming retirement age is 60), the wealth may grow to Rs20.67 lakh (at 8% per annum). But if you invest from the age of 30 to achieve the same corpus, you will need to invest Rs1,521 a month (52% more) for 30 years.

n Again if you are investing Rs1,000 a month from the age of 25 years for 35 years in risk-free financial instruments at 8% per annum, your wealth may grow to Rs20.67 lakh. But if the same investment is made in slightly risky instruments with a pay-off of 12% per annum, your wealth is likely to grow almost 150% more to Rs51.8 lakh. So, the choice of investment classes is vital.

To enjoy a stress-free retirement, you should plan early, save regularly and choose a correct mix of financial instruments. Figure out regularly if you’re on track and make any adjustments, if necessary.

The author is MD & CEO, Bajaj Allianz Life Insurance. The views expressed in this article are his own.