Take Control Of Your Golden Years Financial Planning Final Part:)

Continuing the final part 🙂

Sumit’s colleague, Ankit, who is 30 years old, commences his retirement planning at the same time. Given that he also aims to retire at the age of 60 years, he has an investment horizon of 30 years. Assuming, like Sumit, he invests Rs 50,000 every month @ 10% per annum, he will accumulate Rs 11.30 crore at retirement. On the same lines, Piyush, Sumit’s other colleague, commences investing at the age of 35 with an investment horizon of 25 years to accumulate Rs 6.63 crore at the age of 60 years (at Rs 50,000 per month @ 10% per annum).

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Given that all three of them have the same monthly investment (Rs 50,000), which is invested at the same rate (10% per annum), the difference can be attributed completely to Sumit’s early start vis-à-vis his colleagues. Ankit who has an investment tenure that is lower than Sumit’s by only 5 years accumulates a corpus that is nearly 40% lower than Sumit’s. Piyush, whose investment tenure is lower than Sumit’s by 10 years, accumulates approx 65% lower than him on retirement. A 5-Yr delay in retirement planning sounds like a small difference, but the power of compounding magnifies it to gigantic proportions.

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CHALK OUT YOUR CORPUS 🙂

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You’ll have to keep a realistic goal that you can realise in the time you have. Don’t expect that the zeroes will multiply automatically in your savings. See how much you can afford to save every month. Of course, if you start at a late age you will have to increase your savings substantially, so cut down on any superfluous expenses.

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Prepare a budget which lists what you spend on necessities so that you know how much your monthly/annual expenditure will be in the future. Account for inflation too. Keep a rough estimate of 7-8% inflation every year. Also, consider expenses that are bound to increase, such as medical and transport expenses. Then again, calculate the expenses that may cease to exist, such as your children’s education.

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DON’T TOUCH THOSE SAVINGS

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More often than not, people have combined savings, that is, they save money for all their financial goals together— retirement, children’s education, their marriage, buying a home, etc. Invariably, you spend more on your initial financial goal and end up depleting your savings. By the time you retire, you have barely any money left. Overcome this obstacle.

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Build your retirement corpus separately, and do not touch it. It’s always better to earmark the time period for your goals and make separate portfolios for each of these goals. For instance, your children’s education may be a short-term goal (compared with retirement, that is). Since retirement is a long-term goal, if you are starting early you can afford to take risks and invest primarily in equities. But if retirement is a short-term goal, that is, only 5 years away, you won’t be able to take any risks. You’ll be more concerned about security. In that case, invest primarily in debt instruments.

MAKE A PLAN

Before you embark on saving for retirement, you must have a plan in place. While a plan may sound fancy and even intimidating, rest assured it is not all that complicated. Your retirement plan is simply your wish list of how you wish to spend your twilight years. Among other expenses, when you plan for retirement, you must make it a point to set aside money for medical expenses and contingencies, as any retirement plan without them is incomplete.

While you have to decide how you wish to lead your life in retirement, your financial planner will help  you translate that dream in numbers. He will put a number to everything i.e. your dream house, vehicle, post-retirement income, medical expenses and contingencies among other inputs. He will tell you how much you need to save and where to invest your savings so as to achieve your retirement corpus. In other words, he will outline a roadmap and more importantly, will implement the same for you.

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TRACK AND REVIEW YOUR PLAN

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Once the plan is outlined and implemented you have to still ensure that you are on track at all times to meet your targeted return at the desired level of risk. This calls for a periodic review of your investment plan. Over time as you approach retirement; reduce allocation to risky assets like stocks and/or equity funds in favour of more conservative avenues like fixed deposits.

The future is closer than you think. Pick targets early and give them the right kind of support to take control of those golden years.

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For any financial planning queries, email us at financialplanning@smcwealth.com

Why to Invest ?? For Your Happy and Secure Future..Sir ;)

Investing is the best way to secure your future. 🙂

There are many reasons to invest. You can beat inflation, achieve financial goals like buying a car and plan your retirement.

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Inflation Factor

Remember the days when you just got your first job – your father probably told you to open a recurring deposit account in a bank and make all your tax saving investments in provident funds.

You felt it would give you assured returns with a capital guarantee!

Guess what, not anymore. Times have changed and how!

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Money kept in a “savings” account is earning interest at rates that don’t even keep pace with inflation, so you need to find the best place to put your money to beat inflation by a substantial amount.

Today, inflation is eating into your returns even as you sit here reading this.

If your monthly expenses today are Rs 15,000 and annual inflation is at 5%, 20 years later, when you will probably retire, expect your monthly expenses to rise to at least Rs 39,000.

Bank deposits will give you a return of 6%, but post inflation and tax ; you will be left with a rate of return which runs into the negative.

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This means that while on paper your returns looks a healthy 6%, your capital is actually eroding in the real world.

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Average interest rates on savings account are currently less than 2%. Average annual returns for mutual funds are over 10%.

There is always risk in anything you do, but with education and research you can minimize that risk.

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Longer Life for you.

Thanks to increased life spans and advancements in medicine, research shows that you are now going to live much longer.

You will probably work almost the same number of years that your grandfather and father did, but in all probability live even longer !

Therefore, you have a lot more saving to do to plan and enjoy those extra twilight years of your life.

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Standard of living to be maintained :

Today, you drive in your own car, possess a flat in posh housing colony, you take your family for a lavish dinner at least once a week and do so many things to showcase your elite status.

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Do you ever shudder at the thought of how many of these luxuries will you be able to afford after you retire? :O

Wealth creation is all about making your money last in order to continue enjoying all of these luxuries.

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Families getting smaller and nuclear

Higher economic growth rates have resulted in widespread migration to urban areas and the proliferation of the nuclear family system.

Consequently, the number of households has increased substantially and the security provided by the joint family system is coming to an end.

So dependence on family members like earlier generation is not going to happen anymore.

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Planned expenses

Most of the larger expenses in life are planned expenses.

For instance, purchase of a home, your child’s education or marriage, your own retirement and so on.

These expenses will be incurred no matter what and you must create wealth to meet the same.

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The best thing to do, is to start saving money as soon as possible.

The younger you are, the more money you will have.

Yes, you should start thinking about retirement now. 😉

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