Planning For Retirement

So, what is this retirement planning that everyone is on about ?! 

Well, there is no textbook definition of it obviously. We all need to define it for ourselves. A generation or so ago, retirement was around 60-65 (with a life expectancy of ~ 70-75) and you worked till you reached that age. By then you would have paid off the EMIs for your residence and you would have some money set aside in PF, PPF and possibly an LIC / Pension scheme. You also relied somewhat on your kids to tide through your retirement. 

But that is very different in our generation and will get more and more different as time goes by. 

That brings us back to the question, what is this thing we are talking of. 

Well, we are luckily in the phase where the life expectancy in India is going up significantly. It is already past 80 and by the time we (the mid-40s now) are septuagenarians it is likely to get past a 100. However, the retirement age remains 65 or thereabouts for now. 

Effectively you need to plan for about 35 years of living without a steady source of income like a job. You need to plan for all the contingencies that might come up during that time and anything you aspire to acquire as well. While planning all this of course you need to keep inflation in mind. 

Depending on your life status (marriage, kids ) there might be other milestones to plan for ex. kids education, marriage.

So, retirement planning is nothing but planning for ~35 years of expenses sans salary. It is an actual high-effort activity. At least for the planning phase. Once you are done planning, the execution phase need not be high effort, it can be simple enough especially if automated. 

Here are a few things I would have in my checklist for a retirement plan:

1. A place to live, unencumbered – meaning a fully paid for residence with enough money to take care of any maintenance needs arising (depending on taste /circumstance this can be village /town, independent house, gated community etc.)
2. Health insurance premium, please be aware that this cost escalates on its own with your age, apart from inflation.
3. All basic family expenses of course like grocery, eating out, that bottle of Black Label or vintage wine. 
   1. If retiring in India then this section for sure:  salary to be paid to maids, cook, driver etc. 
4. Travel expenses, retirement is when you will likely have time to do those trips you always wanted to do, make sure to have enough money set aside for it.
5. Develop a hobby, 35 years man – you gotta do something. Plan for the expenses a hobby might entail. Photography, motorcycle riding, gardening can all be as expensive as you choose to make them.
6. Be aware of your device replacement cycles, meaning how often are you likely to change your mobiles, laptops etc. – be sure to budget for those, probably include cars in this. 

There are many retirement planning calculators on the web that you can use, in my page on My Favorites, you will find a list of sites I recommend which might have such calculators. Basically, they all do the same function, take your current age, your estimated expenses during retirement and apply inflation to tell you how much you need. You can do this yourself as well. The final output has to be a number, that is your retirement planning goal.

Things to keep in mind: i. Inflation keeps on going whether you are retired or not, make sure you factor that into your calculations. ii. Be super conservative in your assumption of returns you will get on your investments. iii. Do not compromise on your health insurance.

Once you know the number you need in your retirement, you need to plan how to get there. We will talk about that in a different post. Meanwhile, you can also read about ten fundamentals of personal finance planning and the very basics.

Remember: Better be safe with more money than be short in your sunset years. You don’t want to cut corners or depend on anyone else.