Beginner’s guide to Retirement Investment Planning

Retirement planning should – in an ideal world – begin with your first paycheck. Yet, there are several reasons that keep us from it, lack of awareness being the biggest. In this post, I’ll run you through the basics of retirement planning, what you are doing wrong, and how to start, or do some course correction with some handy tips. Let’s start with the most important question:

How much do you need on retirement anyway?

Let me illustrate this with an example. Let’s say you are 30, and expect to retire at 60 (not very obvious in private jobs thought). Your current monthly expenses are INR 50000 per month today. If you live till the age of 75, you need a whopping INR 7.7 crore in those 15 years. So thirty years to save 7 crore. Which – without compounding –  means INR 23 Lakhs a year.

Things you need to stop doing. Right now.

Spending more than necessary

Which is often the money you don’t have (credit cards), to own things you don’t need, to impress people who don’t matter. This is a very common behaviour when you have surplus money. And if you remove these expenses from your cost of survival, your retirement goals will suddenly become a lot more attainable. For instance, if you cap your monthly spends to INR 35000 instead of INR 50000 today, you will need a whopping 2.2 crore less on retirement.

Living in denial

This means a lot of things. You are young and in the best of your health so the thought of falling ill or old age feels alien to you. Or you disregard the cost of healthcare because you haven’t had a serious health issue so far, or your company insurance has taken care of it. In all likelihood, none of these things will stay with you after the age 60. Start seeing the long term picture, and plan accordingly.

Not starting saving early

This is probably the most common problem. We first wait for finances, then for financial literacy, and by the time we begin, we’ve lost the super-power of compounding for a good number of years. Remember, the trick isn’t to start big, but to start early.

Most importantly, not diversifying your investments

The risk-appetite for Indian investor has been traditionally low. We are inclined to buy low risk low return instruments like LIC, gold, land, property and other government-led debt saving instruments like National Saving Certificates, FDs, PPF and EPF. While safe, the returns on these instruments just about makes up for the inflation. It is therefore very important to diversify into other instruments like stock market, ELSS, and Mutual Funds.

While markets may seem volatile or low-grown in the short term, they are always a wise diversification choice for long term. For instance, if you’d invested Rs. 100 in stock market in 2005, as of today (Jul 2017), they’d have become Rs. 433.

Not starting self-investing. Yesterday.

Given that the awareness of, and the convenience of investing into MFs is more than it ever was, this is the best time to start investing. There are a lot of Mutual Funds to invest into, depending on your requirement. Here’s a super useful tool that tells you the returns you will command on your mutual fund investments.
Conclusion: There are more than one smart ways to reach your retirement goals. The idea is to be aware, open to trying new things, and be ready for course correction when it comes to investing. Go ahead, start working on your final innings grand.