One should plan retirement from a young age. If one can start saving from a young age, one would experience the power of compounding, which is said to be the eighth wonder of the world.
Time matters
The wealth generated in mutual fund investment does not depend on whether the stock market goes up or comes down but, for the time being, one remains invested in the market. I would further state that the time one stays invested in the market is more important than TIMING the market. Wealth creation does not depend on IRR or one’s smartness but on the consistency of investment. I would say a person loses money in the stock market not because of market behaviour but because of one’s behaviour.
Over two decades ago, retirement conditions were different. It was believed that children would take care of their retired parents, including their hospitalisation costs and other requirements. The joint family system also made it easier for relatives to take of retired individuals. However, since the joint family system has depleted, the thought of children taking care of retired parents is also getting obsolete. To provide for one’s retirement is the thought that is gaining ground currently.
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Start saving
The earlier one starts saving, the better. However, one should also enjoy the saving process and not consider it a burden and compulsion. One needs to save for retirement so that one can retain the same standard of living and are not dependent on children and charity.
When to start planning
When should one start planning for retirement is a common question that is raised by young people. There is no rule as such but the earlier the better. I would say that once a person starts saving for retirement corpus, s/he should avoid withdrawing the retirement investment for any other purpose.
Money in the kitty
What is the amount required for retirement is another important question that one needs to pay attention to. One needs to consider a situation where one would require the corpus to last at least 20 years after retirement. If one feels that s/he is late in planning for retirement the s/he would need to set aside a larger amount per month to create the retirement corpus.
Health insurance is an important aspect of retirement planning. Everyone needs to have a health insurance plan that covers hospital costs. Health insurance is generally the last on a person’s mind. However, it should be noted that it is not easy to get health insurance after reaching 60 years of age. Also, if one gets a medical plan at age 60 the premium could be exorbitant.
To conclude
Retirement and medical provision is also important and one should do it at the earliest with the help of a financial advisor. Also, as mentioned in my previous column, ensure that one’s financial advisor is not a bank relationship manager.
Another aspect of financial planning is to create an emergency fund that would take care of six months of your monthly expenses. The importance of emergency funds was well noticed during the Covid lockdowns when the income dropped for months or stopped for a short period.
(Bhushan Limaye is a Chartered Accountant)
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