Have You Planned For Your Re­tire­ment Well?

Dalal Street Investment Journal - - EXPERT SPEAK - He­mant Rustagi Chief Ex­ec­u­tive Of­fi­cer, Wi­sein­vest Ad­vi­sors

Re­tire­ment plan­ning is one of the most im­por­tant goals for ev­ery in­vestor. How­ever, not many in­vestors plan for re­tire­ment in a man­ner that can en­sure a com­fort­able re­tired life for them. It is also quite com­mon to see in­vestors de­lay­ing their in­vest­ment process for re­tire­ment as they think that they have enough time on hand to do so.

Need­less to say, goals like chil­dren’s ed­u­ca­tion and mar­riage as well as buy­ing a house re­main their top pri­or­ity and hence re­tire­ment plan­ning doesn’t get at­ten­tion it de­serves.

Then, there are those who do re­al­ize the im­por­tance of plan­ning for re­tire­ment, but of­ten get over­whelmed by the very thought of hav­ing to build a large cor­pus. Un­for­tu­nately, de­spite hav­ing the abil­ity to in­vest some money on a reg­u­lar ba­sis, they do not start in­vest­ing, think­ing that they re­quire a large sum of money to be­gin in­vest­ing for the goal. In re­al­ity, even if one starts in­vest­ing smaller sums on a reg­u­lar ba­sis through SIP in an as­set class like eq­uity and con­tinue the process un-in­ter­rupt­edly over longer pe­ri­ods, a com­bi­na­tion of healthy re­turns and power of com­pound­ing can pro­duce amaz­ing re­sults.

There are also in­vestors who feel that amount ac­cu­mu­lated through prov­i­dent fund and gra­tu­ity will be enough to gen­er­ate ad­e­quate in­come dur­ing their re­tire­ment years. Clearly, they un­der­es­ti­mate the im­pact of in­fla­tion on their ex­penses and of­ten strug­gle to gen­er­ate enough to ful­fil their re­quire­ments. It is quite com­mon to come across peo­ple who feel that even if there is a short­fall, their chil­dren will pro­vide for it. While it can be passed off as a nat­u­ral in­stinct of par­ents, not hav­ing enough can re­sult in com­pro­mis­ing with one’s dig­nity and needs in th­ese im­por­tant years of one’s life.

The moot ques­tion, there­fore, is how should you go about plan­ning for your re­tire­ment. As is ev­i­dent, re­tire­ment plan­ning is an im­por­tant goal of your life and hence it should be given its due in your in­vest­ment process. Ig­nor­ing this im­por­tant fact ei­ther by com­pro­mis­ing on re­turns or not plan­ning the process prop­erly can cause dis­ap­point­ment for you in more than one ways. Be­sides, don’t make a mis­take of with­draw­ing amounts dur­ing your cor­pus-build­ing process. While at times it may be nec­es­sary to do so, mak­ing it a habit can neg­a­tively af­fect your re­tire­ment.

It is im­por­tant to make some smart money moves which in­volves bud­get­ing and look­ing be­yond tra­di­tional in­vest­ment in­stru­ments like FDS and small sav­ing schemes and real es­tate to give your­self a chance to ac­cu­mu­late more and earn pos­i­tive real rate of re­turn i.e. gross re­turns mi­nus taxes and in­fla­tion. No doubt, there are at­ten­dant risks of in­vest­ing in mar­ket-linked prod­ucts, but th­ese can be mit­i­gated by fol­low­ing an as­set al­lo­ca­tion strat­egy and a dis­ci­plined in­vest­ment process. Once you reach closer to your re­tire­ment age, it would be pru­dent to re­bal­ance the port­fo­lio in a phased man­ner to make it fit for in­come gen­er­a­tion as well as gen­er­ate growth af­ter re­tire­ment. Re­mem­ber, tax ef­fi­ciency of re­turns can make a huge dif­fer­ence to what you get to keep when you re­tire and hence it is al­ways ad­vis­able to opt for tax ef­fi­cient in­vest­ment op­tions like mu­tual funds. Mu­tual funds of­fer op­tions to save taxes at the time of in­vest­ments as well as of­fer tax ef­fi­cient re­turns. For ex­am­ple, an in­vest­ment op­tion like ELSS al­lows you to save taxes un­der sec­tion 80 C and also pro­vide tax free re­turns.

Then, there are a few re­tire­ment funds that of­fer the same ben­e­fits. In fact, th­ese funds also al­low you to re­bal­ance the port­fo­lio at a later stage to pro­tect gains and of­fer op­tion of a Sys­tem­atic Trans­fer Plan (STP) to gen­er­ate reg­u­lar in­come. This is sig­nif­i­cant as it re­moves un­cer­tainty over re­ceipt of a cer­tain sum of money ev­ery month, de­spite be­ing in­vested in mar­ket-linked prod­ucts.

Last, but not the least, you must have a life cover till you re­tire to en­sure that in case of any un­for­tu­nate event, those who are fi­nan­cially de­pen­dent on you do not suf­fer. Any dis­rup­tion in in­come dur­ing ac­cu­mu­la­tion stage can se­ri­ously im­pact fi­nan­cial po­si­tion of the fam­ily and hence risk man­age­ment in the form of life cover has to be given top­most pri­or­ity. A term plan is cer­tainly the best op­tion as the fo­cus should be on the quan­tum of life cover and the cost in­volved.

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