About the Book : – To most people retirement is an age. It of course depends on your health, the company you work for etc. However in the first chapter I would like to introduce you to the concept that retirement is an amount of money! After all, if you have that magical amount why not retire early?

The second chapter takes you through the steps and importance of planning, and to the dangers of not planning.

Like any financial goal, retirement is also a goal and has to be approached in a financial planning mode. So Retirement Goal Setting becomes a very important and is perhaps the first step in Retirement planning.

How much money is adequate for a person to retire? Here is a generic answer telling you what are the factors to consider while trying to answer this question. This chapter has many pointers and a calculator which leads you towards the answer. Remember this is dynamic.

Can you really retire by investing an amount as little as Rs. 40 a day? The answer is yes it is the power of compounding. If you do have or time on your side, it is possible to create a retirement corpus on an amount as small as Rs. 40 a day. And the fantastic thing is that this small amount can be got by making very simple changes in your life style.

If you have accumulated money for your retirement, you should also know how to withdraw. Here we deal with what is annuity, what are the methods of creating annuities, what options are available, and the works about annuity.

Retirement savings and investments are invested in various instruments. A book cannot really do justice to all the schemes that are currently available- neither has the author attempted that. There are books specializing in information about investment products which are updated regularly – like In the Wonderland of Investments by Mr. Shanbag.

A few chapters are devoted to answering how much and what type of insurance should you look at during retirement, the attitude of the Indian family to retirement, the need to make a will, some retirement blunders, etc.

What is interesting are the tables at the end of the book telling you how much to save and invest – and case studies about portfolio make over for retirement.

PPF , PF, EPFO , Mutual Fund Pension Schemes, Retirement Planning products from Insurance Companies, bank fixed deposits and post office schemes. A very small part of the population created its own customized Individual Products. This could be a couple of extra properties creating rental income, shares creating dividend income etc. Many people of the earlier generation would be dependant on their children – willingly, unwillingly, happily or unhappily.

Welcome the NPS -  the new Avatar for Retirement Planning. Created by the government of India it has Some major advantages of the NPS. Let us look at them.

Costs Involved:
i) The total costs involved in terms of % are minimal – cheapest in the world.
ii) The charges are under various heads such as CRA Charges, PoP Charges, Custodial Charges and Fund   Management Charges.
iii)  Flexibility to choose the fund manager, Flexibility to choose the asset allocation.
iv) Portability across the geographical location, Transparency.

This conference was at Shimla and 450 students had gathered from all over the country (and a few outside the country too)- and during the day they were to have parallel sessions – on environment, education, financial literacy, …etc..

What I saw was disturbing. The program which was supposed to start at 9.30 am started at 11.30 am – because the previous night was a ’scullying’ party – the biggest drinker wins! The program was organised in the canteen – so the lunch break was from 1.30pm to 3.15pm. Obviously on the fly, most topics were dropped!

So here were 450 students (tomorrows businessmen and political leaders) who could not stick to a time-table. It is just that simple lack of discipline.

Many students were smoking – I have nothing against it – (as a shareholder of ITC, I actually benefit commercially) but was shocked that there were parents who were throwing so much money at kids that a 20 year old could afford to spend Rs. 200 a day (repeat Rs. 200 a day) on cigarettes – for self and friends. I hate extrapolation, but surely you can add. The smoking and drinking was there to see – and the lack of discipline was visible in how the hotel was abused. The common toilets were not usable. And these were rich kids – it takes money to reach and stay in Shimla especially if you are coming from Bangalore and Chennai!

Though most students wanted to do their higher studies with borrowed funds, most would be funded by an ATM called ‘DAD’ or “MUM”. It is time parents told their kids “You will get admission in a college for which you have the marks and not a college which MY money can buy”. Somwhere parents tell children “I will buy you admission”. I guess either it is too much money which the parents have or the children’s ability to squeeze every bit from their parents that allows children have so much money. Children from less affluent households seem to behave much better.

Obviously because I have not said anything nice about the event (some other things were unprintable) I will not reveal the umbrella under which they had gathered. If my daughter mentions that name to me, I will faint. Parents who want to know the name of the organisation will have to send me their cell phone numbers, surely will whisper in their ears.

By the way did they ‘hear’ me out? Yes. 1 kid was working for Max New York Life Insurance and one was pursuing CFP. 2-3 girls paid attention to what I said and about 12 boys took notes understood, asked questions, asked for my blog, email id, cell number, etc. and promised to keep in touch. They may or may not. However there were 50 people in the class. 30% attention after a scullying night is not bad. Only if I had known it in Mumbai that this was the crowd I would have pretended that I was busy and would have avoided the arduous Chandigarh – Shimla drive for a 1- night trip. That is all!

Unless they are at least 37-38 years of age, they have no clue as to how much they need for retirement. Once they see the figure (let us say Rs. 4 crores) they get into a DENIAL mode. Immediate reaction is to say “my father did not need this much amount” or “my expenses will reduce after retirement” or “my children will take care of me”.

Once they cool down, they sit and work out how it can be put together.

What most people do not realise is that the figure looks very big because we are seeing it from a very long tunnel. If I were to tell you that YES you do require Rs. 4 crores to retire, 30 years from now. HOWEVER if you were to invest just Rs. 100 a day for 30 years in a SIP which gave a SENSEX rate of return, you will have Rs. 4 crores in your retirement kitty.

So the important lessons in retirement planning are simple – make an estimate of your needs, adjust them for time value, compute the amount that you need to invest on a monthly basis, THEN START TODAY. Do not let the power of compounding go away – harness it when you can. Simple

So let us start.

Step 1: If you have a financial plan include retirement planning into that plan. It helps to start early, and I have no clue how to convince anybody in their 20s to plan for their retirement! Imagine asking a person collecting the first salary to think of investing for retirement. It is tough. However it helps. Like any budget retirement budget starts by estimating your income and expenditure during your retired life. The most important estimate is how much will be your retirement expenses be – both day to day expenses and big chunky investments.

It is very likely that you will buy at least one house, a few cars, white goods, tours and holidays, nursing and care etc. during your retirement. Apart from these capital draw downs that you do, you will have to estimate the expenses on food, shelter and clothing too.

How much you will spend in retirement is a function of your standard of living and how long you expect to live! If your parents (or grandparents) have been living to the age of 90 years, chances are you will hit a century!

Make a realistic estimate of help that you may need for day to day living – say nursing, assisted living, old age home, inflation, un-insured medical expenses, medical insurance expenses – these are what we can call the ‘non-negotiable’ expenses. Then there are expenses like travel, fun, eating out, entertainment, – called the ‘discretionary’ expenses. These expenses will happen if the body listens to the mind!

Next draw up your list of things you own and the amounts you owe! Estimating how much you really have is an excellent exercise which you may or may not have done. This statement will tell you about all your assets and liabilities – and your ‘net worth’. Your net-worth is the mathematical difference between your assets and liabilities. Many people forget to add the cash value of their life insurance, their provident fund, etc. in their net-worth. Ensure that you include all your assets, and all your liabilities like home loan, car loan, personal loans, etc.

Your retirement life should be distributed into at least 4 parts, if not more. In case you retire at 55 and live till the age of 95 years. Your lifestyle (and therefore your expenses and income) will be different in 4 blocks as follows:

55-65,     65-75,      75-85 and       85-95.

Once you have decided your ‘blocks’ estimate your ‘retirement income’. From 55 to 65 years you may end up earning some amount by pursuing some activity – right from maintaining accounts for co-operative societies to teaching in a coaching class. Apart from this of course you should identify any income you will have in retirement – pensions, as well as any rental, dividend, interest, or other income.

Systematically withdrawing from your capital is something which you should consider only after you and your spouse reach the age of 72-73. Till then you will have to live within your income.

So make sure your expenses are less than your income!

It is met with an “obviously no. why do you even ask”. Well the obviously no is said and ‘why do you even ask is in the body language.

I tell them, if you get used to using a car for, say 3 years, you have a problem, do you not?

Let us say you retire at the age of 55 (highly probable) and live up to the age of 90 (sad, but again possible). This means you have about 35 years in retirement. If you use a car for say 5 years (instead of 3 at present) you will need to buy at least 5 cars (assuming you drive till 80, then, start using a driver). Also buildings that are constructed today may not last 35 years. So if you have bought a house when you are 45 years of age, that may last say for 35 years. So at your age of 80, you will have to BUY a new house!

My father bought a house in Pune – Athashree (see www.paranjapebuilders.com) – which is a beautiful place for senior citizens to live. It has fantastic assisted living facilities. My mom’s brother bought a place for himself in Coimbatore. My Mom’s sister bought herself a nice house in Bangalore – where they liked the weather compared to their Chennai residence. All of them were above the age of 70 when this 2nd house purchase was made. The funding came from their mutual funds, ppf, sale of equity shares.

All of them had kept their primary residence – just in case they had to come back!

So in your post retirement age you will end up buying at least one house, a few cars, a few mobiles, a few white goods appliances, a few vacations (optional), medical care, assisted living, long term care, etc.

The question is no loans will be available for these purchases. You will pay cash – and the cash will come from redeeming your mutual funds, ppf, ulips, equity shares, etc. So apart from providing for your food, medicines, etc. provide for purchase of all these assets.

Unless they are at least 32-33 years of age, they have no clue as to how much they need for retirement. Once they see the figure (let us say Rs. 4 crores) they get into a DENIAL mode. Immediate reaction is to say “my father did not need this much amount” or “my expenses will reduce after retirement” or “my children will take care of me”.

Once they cool down, they sit and work out how it can be put together.

What most people do not realise is that the figure looks very big because we are seeing it from a very long tunnel. If I were to tell you that YES you do require Rs. 4 crores to retire, 30 years from now. HOWEVER if you were to invest just Rs. 100 a day for 30 years in a SIP which gave a SENSEX rate of return, you will have Rs. 4 crores in your retirement kitty.

So the important lessons in retirement planning are simple – make an estimate of your needs, adjust them for time value, compute the amount that you need to invest on a monthly basis, THEN START TODAY. Do not let the power of compounding go away – harness it when you can. Simple.

One such term they have created is Lifestyle creep.

What is lifestyle creep?

It is about people increasing their standard of living with temporary income – thus not being able to maintain it when the income suddenly disappears -Lifestyle creep is particularly a problem to those individuals approaching retirement. People, a few years before retirement are typically in their peak earning years, but at the same time many of their earlier expenses, such as paying off a mortgage, or raising a family have vanished. Suddenly with a new found surplus of cash, some people use it to buy more expensive cars, more expensive vacations or possibly a bigger home.

Since the goal in retirement is to maintain the lifestyle enjoyed in the last few years before retirement, these retirees require more funds to support their new, more lavish lifestyles. Unfortunately, they don’t have
the resources to do this because they spent their surplus cash flow.

This is somewhat akin to the ant and the grasshopper story – the advice somebody can give them is “if you were singing during the summer, go and dance in the winter”.

So suddenly you have people who have “upped” their lifestyle with temporary income (come on, you knew it will end on the day you retire) and now they can now wonder how to continue this “temporary addictions”!

When people look at a huge number – say Rs. 5 crores – the immediate thought is “Oh, my God!” I cannot do anything about this! However this is not true, nor desirable.

You as a customer (client) should understand that this is a nice round figure, but if you do reach Rs. 4 crores, it is not the end of the world. Also you need to understand that if you start to save, say 30 years in advance, you may need to invest only Rs. 80 a day to reach there. However if you start 5 years before retirement, you may need much, much, much more – say Rs. 6 Lakhs a month (or Rs. 20,000 a day!!).

So instead of killing your adviser, start, albeit with a small amount. Starting is more important than the amount with which you start. It is like getting a root canal treatment done – do not try doing 12 teeth at a time!

I cannot comment for every one, but too many people are in denial about their financial needs for retirement. Most of us do not want to accept that we will buy 3-4 washing machines, air conditioners, refrigerators, maybe about 2-5 cars, at least one or two houses during our retired life!

And all this buying will happen with our own money – i.e. by selling our mutual funds, unit linked plans, shares, etc. and from our pensions!

Strong financial planning is the key to a comfortable retirement
If you’re planning to spend your retirement in comfort, you’ll need to rely on some pretty strong financial planning. You’ll want to take into account your current financial position and your anticipated retirement income, preparing for contingencies and unexpected expenses along the way. Then you’ll need to develop a strategy for setting aside money on a regular basis to fund your retirement financial planning and choose wise investments so your money will build as much as you need. It’s kind of a daunting task, and it’s no wonder that so many people planning their retirement are worried about the quality of financial planning available in the country.

Benefits of the top financial products for retirement planning – Critical need for Long Term Care Insurance
There is a critical financial aspect of retirement planning today. If you lose the capacity to take care of yourself and require either in-home assistance or be transferred to a nursing home, all the financial resources you set aside when planning your retirement may be spent in just a few years on the cost of health care. Long term care insurance will cover the cost of your medical needs without jeopardizing the wealth you’ve accumulated for retirement or want to pass on to your heirs. Unfortunately no such insurance is available in India as of now.

Choosing the right type of life insurance is also part of planning for the financial circumstances of retirement. If something were to happen to you before you retire, you likely would want your spouse to still have the lifestyle and financial security in retirement you envisioned in your planning, and the right life insurance policy can ensure that.

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