Retirement planning ranks as one of the most overlooked financial planning activities. Most of us are so preoccupied with planning and providing for the present that we overlook the need to provide for the future.
The need to plan for retirement is real. And it is important that it is given top priority.
In this issue of Money Simplified, we guide you through the entire process of retirement planning.
The longest of journeys start with a single step. We are not sure who said that, but being in the financial planning space, we think it most aptly describes what retirement planning is all about. Planning for retirement is one long journey but a resolute and systematic step-by-step approach makes it a lot less laborious.
1. Start early
A well-prepared approach towards any goal is usually the result of an early start. Retirement planning is no different. We hear financial planners say that it's never too early to start saving for retirement, they are right. Make no mistake that an early start helps and you will be surprised at just how much it helps.
Your friend or colleague who started saving for retirement even five years earlier than you with the same quantum of investments is likely to save twice as much as you at retirement.
Even if you don't have the requisite amount of money required to start, the key lies in starting with what you have and making up for the deficit at a later stage. However the opportunity to make an early start should not be compromised with.
2. Seek the assistance of a financial planner
Planning for retirement can be fairly uncomplicated. You need to have a good idea of where you want to be 30 years from now in financial terms and what kind of a lifestyle you would like to maintain.
However, putting the financial plan in place (which has a lot to do with math, an unpopular subject with a lot of us at school) can be quite complicated. This is where an investment advisor steps in. He can give a concrete shape to your retirement plan by coming up with 'the all-important figure', based on your inputs and chart out a plausible investment strategy for the long term.
3. Implementing the plan
Having an investment plan in place sets the ball rolling for you and your investment advisor. He will now implement the plan by making investments in stocks, mutual funds, bonds, small savings schemes and fixed deposits among other investment avenues.
Your risk profile is the most important reference point for the investment plan. The objective is to invest in avenues that lower risk and maximise returns and do so in line with your risk profile.
Asset allocation, i.e. investing across assets in varying degrees will play a vital role over the long run. This is where the investment advisor's expert advice will play a crucial role.
Typically a retirement portfolio should be well-diversified across pension plans, mutual funds, equities, EPF/PPF and fixed deposits.
4. Tracking/reviewing the plan
Your investment plan must be monitored regularly to make sure that you are on course to meeting your objectives over different market cycles without compromising on the risk.
Again, your investment advisor has an important role to guide you in this regard. For instance, with the robust performance of equity markets over the last couple of years, you are probably over-invested in equities and have therefore taken on more risk than usual. You will have to liquidate some of your equity investments to bring it in line with your risk profile.
With passage of time as your risk profile changes, the same will be reflected in your investments as well. The portion of investments in market-linked products like equities and mutual funds is likely to reduce; instead greater allocations could be made in assured return avenues like fixed deposits.
5. Don't dip into your retirement savings
Since retirement money is sacred it is important that you treat it as such. Your carefully drafted investment plan need not go for a toss every time you witness a cash crunch. Avoid dipping into your retirement monies, unless it's urgent.
A one-time sum of Rs 5,000 invested over 30 years (at 10% compounded growth) will swell to Rs 100,000. That is what long-term investing can do for you, so money needs to go into your retirement savings kitty and not come out of it.
