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Saving For Retirement

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In India, traditional retirement planning started only when an individual turned 40 years of age. However salaried individuals in the age group of 25 -30 are increasingly approaching financial planners to put in place a retirement plan for themselves. Given the changing economic and social structure in India, the absence of a government backed social safety net , rising life expectancy and rising cost of living, this shows a much needed welcome change in attitude of the young and salaried individuals. 
Statistics show that almost 52 per cent of India’s young population is below 40 years of age and the median age is nearing 26 years. So in about 25-30 years from now, a very large number of us Indias will start entering retirement age. Statistics also show that 4 out of 5 Indians have not planned for their retirement. And with the joint family concept in India slowly disintegrating into nucleus families, these young people would surely  needa large corpus to take care of their sunset years.  And if  thislarge group of young Indians do not start planning for retirement early, this  could add to  more social problems at a later stage. 
One of the most important things to understand and remember is that when you are old, it is important to have money to live a life of dignity without depending on others, which become very important during our sunset years.
Therefore, it becomes essential to plan for retirement when one is young and working. And with  job stress , early burn-out and the desire for early retirement  being a common feature today we may see a case with more number of non-working years being supported by lesser working years.
Here is a simple example of  how much money one would require when retired.
  • Monthly Pension Requirered: 50,000/- (In Today’s Value)
  • Retirement Age:  58  years;  Life Expectancy : 80  years
  • Inflation Rate - 6%,  Rate of Return in Retirement  - 8% : 
  • Rate of Return in working years  - 10%.
  • All figures rounded - off

As you can see in the above chart, India is a country  where the rate of inflation is high. Add to this, if you do not invest well and smartly, some part of the returns will also be 
eaten away by taxes.  Therefore by creating a simple retirement  plan for yourself and what you expect from your savings and investments, you could then choose the right 
investment to meet your  post – retirement financial needs. Such a strategy can take care of issues such as  rising medical costs, longer life expectancy and high inflation. 
So it is always better to start early and let time be on the side of the investor for long term wealth creation. 
5 Simple Steps For A Peaceful Retired Life
  • Start Early -  Start from your first pay cheque
  • Must have some equity exposure for long term  goals such as retirement  i.e. 5 years plus.   You can start through a systematic investment plan into sound equity  mutual funds. 
  • It is not about timing the equity  market, but the time you spend in the market
  • Be disciplined , patient and have a clear plan for your money
  • Seek expert help if you are not confident about investing
The author, Mimi Partha Sarathy, is Managing Director, Sinhasi Consultants