Why Retirement Planning
The concept of retirement planning has gained ground in recent years with the rapid urbanization and increase in nuclear families. Gone are the old days when it was a big joint family taking care of each other’s daily needs and providing support during difficult times – both monetarily and physically. In today’s times, with the independence that the younger generation yearns for, also comes the added baggage of being on your own in anything and everything. This becomes more pronounced as the family grows with children having to be taken care of, domestic chores, safety needs, etc. The actual expense associated with running a house and taking care of family has skyrocketed exponentially over the last decade. To add on top of it, our own lifestyle has undergone a sea change due to various factors. In an urban city, it’s unimaginable for a family, especially if both partners are working professionals, to conduct their daily chores without the helping hands – maids for household chores, the cook for taking care of meals, the driver for transport needs et al. We are today surrounded by the assistance which takes a significant toll in our monthly expenses. Unfortunately, some of these lifestyle changes are never really going to go away – yes some of them may be automated with driverless cars or that robot that can clean your house but those are going to be ongoing expenses too in some form or the other!
Sandwich Generation?
If you are in your mid 30’s or early 40’s you are known to be the ‘Sandwich Generation’ – the one who needs to take care of their parent’s financial wellbeing coupled with your own children’s ongoing educational and other expenses. Older generation parents expect this, and rightfully so, as their children’s basic duty towards them which they fulfilled for their own parents as well. But would it be wise for us to expect the same from our children? Probably not!
Our children are growing up in very different times and expectations. We are inculcating in them the virtue of being independent in their thoughts, work ethics, and preferably their career choices as well. Not anymore the engineer, doctor, or default career choice that was forced
upon us as the only way out of lower-middle-class poverty in India 😊! Today, with the economic strides India has made over the last two decades, the career choices are innumerable and we encourage our children to explore it to the hilt and for as long as they would like till they “find their calling” – interim expenses fully paid and borne by the parents.
Whilst we pamper and encourage this to vary degrees of affordability, depending on how well we earn today, it would be imprudent for us to expect that these same children will grow up to become adults who would tolerate that their own parents are going to be dependent on them in any manner.
So What Next?
Let’s first understand in financial terms what do we need to prepare for. If you have perennially stayed away from terms like inflation, compounding, real return rate, etc. cos they sounded too complicated, now may be the right time to start understanding the basics of it to secure your old age and future.
Foremost and the first step towards what we are headed towards will be clearer from the illustration below on how our expenses will grow (in those real INR terms) over the next 5, 10, 20, 30, and 40 years. We keep hearing that statement from our parents that during our times we used to buy that bread packet for just Rs 5/-, bananas were sold in dozen and not kgs and so on and so forth! This is exactly “Inflation” eating into the purchasing power of you, me, and everyone on a daily basis. Extrapolate this to your children’s ever-increasing educational fees, online tuition fees, that sports sir’s fees, or that music class teacher’s fees and you would get the gist. Yes, with retirement and children being on their own, the monthly expenses would come down but they wouldn’t go away permanently. And they would only increase year on year!
Illustrations with assumptions on inflation – not real figures!
How to Plan for Retirement
Retirement Planning should be your No 1 priority in today’s times. Rest all goals, though important, cannot overtake the priority of retirement planning for the simple fact that these are the years when we would be on our own, possibly not earning any income and inflation eating away into our savings. To add to this, old age invariably would bring about its own medical challenges, unless you are supremely fit with excellent genes passed on to you by your ancestors! We need to circle in those medical expenses in addition to our daily, monthly needs.
Knowing how much we would need is half work done. The next critical step is to start investing separately for this corpus in a very disciplined manner. Time, which works against us due to inflation year on year can also work in our favor for the same investments made month on month. That’s the compounding magic at play. The below illustration gives a good glimpse of what corpus you could build with a small amount starting today and live carefree senior years. If planned well, you could actually end up giving back to society and your near and dear ones in a meaningful manner right till your sunset year!
A monthly SIP of around 80% of the current monthly expense, increased by the same amount after every 5 years, can lead to a comfortable savings corpus at retirement age as shown in the illustration.
Illustration with assumptions on inflation and ROIs – not real figures!
To Conclude
Retirement Planning Savings is the key to your stress-free and healthy living during your sunset years, a time when you should be enjoying with your grandchildren, vacationing with your spouse, and living life to the hilt without any financial worries. Start that SIP today!