When we plan for any event we tend to look at:
a) our own past experience and
b) our parents, our elders, etc. see what they have done.
So how should we at say 40, 50 or even 55 plan for our retirement at say 60? I mean financially?
The normal thing is to go to Google and look for some calculators. These calculators (mostly American versions crudely adapted to Indian conditions) or made from scratch bottom up by Pattabiraman of www.freefincal.com.
Well they throw up a number – More sophisticated and complex varieties allow for all sorts of tweaks – inflation, investment returns, and smoothly rising income and contributions over the years. Most of them even let you assume that you will have a nice smooth contribution. They assume a CAGR of 12% in equity. Most of them cannot understand standard deviation. Most investors cannot understand the importance of NOT INTERUPPTING the compounding process. What a combination!!
So take some numbers put it in a calculator and then hope life is as smooth as the calculator. Sigh. This does not always happen.
What all does the calculator not take into account are significant and crucial ones are:
loss of job
illness – leading to not being able to work (and hence save/ invest)
apart from a 20 year bear run or a con artist selling you a lemon.
No calculator, no financial planner, no events happening to friends prepares you for such eventualities.
So my take on pension planning is simple – by all means save, invest, earn as much as possible.
Doing all that is fine, but do the following too:
Build a nice group around yourself – people 20 years younger than you as well as people 20 years older than you should be in that group. It should have decent gender break up, obviously a common interest should bind you – running, walking, cycling, travelling, hiking, music, photography, – whatever is your hobby.
Be good to your wife (divorce can hurt you financially too!!)
Be a fitness freak – ill health is expensive too.
Be friendly with good doctors who have a genuine interest in ILLNESS PREVENTION instead of docs with ILLNESS curing as their aim. My doc has helped me and EARNED NOTHING FROM ME. I paid him once – and that was for his charitable organisation, but he still talks to me nicely!! And I have many doc friends who are happy telling me how to stay off medicines !!
Do all your retirement calculations on a white board.
In Retirement, nothing is permanent.
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