A legacy of the same mindset, in our country for most retirement is a distant goal and hence they hardly plan for it. Most employed people contribute to their provident fund (PF), their employers also making matching contributions. However professionals and others have no employer or government sponsored social security net unless they work for a gov ernment entity or a corporate. Hence, people often end up just buying insurance policies, pension plans from in surance companies and real estate thinking that's all there for retirement planning.
For most people, the first fifteen odd years goes in buy ing a house and providing for their children. It is only after they are into their 40s, and mostly in their late 50s — when the children have grown up — they realize the need for retirement planning. And then they wonder: Have I saved enough? When can I slow down or retire? How much will I need during retirement?
Take the case of Ajay Burman (name changed), an en gineer in his late 30s. In his initial days, retirement was like a distant dream for him and his entire focus was on living a luxurious lifestyle and to be seen in a posh house. Be sides this, he made sure that they had great vacations every other year. Looking at an elder colleague's situation of having little left at retire ment made Ajay worried about his retirement as there was no focus on building a re tirement corpus and hence most of the money was spent on living expenses, housing needs, children and luxuries
Thankfully, he can still ac cumulate sizeable funds if he is able to work for the next 20 years and is focused on sav ing and investing prudently.
The problem in retirement planning is that most do not have a written strategy and there are no separate invest ments made with a view of corpus accumulation. In fact most people believe that they still have time to accumulate wealth. However, one of the biggest mistakes that people make is not allowing time to work on their retirement goal
Time creates money. In other words, compounding and its direct effects will work wonders on your port folio. Let's take an example of just starting early. At 39, if Ajay invests Rs 10,000 per month in an investment that yields 12%, he will have Rs 1.12 crore when he is 60. How ever, if he starts at 40, and in vest the same amount at the same rate of interest, at 60 he will have Rs 98.9 lakh. The difference is Rs 13.8 lakh even though he started investing just one year later. Now con sider the same investment at 15% return. The difference is a staggering Rs 25 lakh.
The above figures mean that when it comes to money time is probably the most im portant factor in the growth process.
What should one do?
State clearly, "I will retire on January 1, 2020 (or any date) and want to have an in come of Rs 2 lakh (as on to day) per month till my age 90"
If you have not bought a house, buy a house as soon as you can afford to do so.
Keep a savings budget.
Invest a certain portion of what you earn in debt, long term equity investments like mutual fund schemes, and gold
Open a PPF account and invest Rs 1 lakh (The limit has recently been enhanced every year).
Contribute regularly to EPF and if you can make vol untary contributions to VPF
With advancements in medical science and tech nology, one would probably live longer after retirement This means that Ajay must plan for at least 25-30 or more years in retirement during 30-35 years of his working life. And if he plans to retire early, he must plan for at least 40 years of non-working life compared to around 20-25 years of his working life.
TIME IS RUNNING OUT
The problem in retirement planning is that most people don't have a written strategy tThere are no separate investments made with a view of corpus accumulation tMost people believe that they still have time to accumulate wealth
Source: http://articles.economictimes.indiatimes.com/2011-11-22/news/30429098_1_retirement-provident-fund-pension-plans
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