Retirement planning, supposedly,
is a road map that helps you understand, visualize and work towards a financially
independent post retirement life. Theoretically speaking that is.
A plan template assumes
certain factors which are common. However, just like fingerprints, retirement planning
roadmap is different for every person. Past experience and current environment
can certainly be of some help in devising a strategy which is based on certain
guiding principles and lots of commonsense.
Laying down the guidelines—rather
than be of help-- may themselves impede the retirement planning process. One of
the biggest roadblocks to setting up a workable retirement planning strategy is—YOU.
For instance:-
- You may have assumed average inflation to be 8%, while actual inflation can be and is actually higher than the assumed rate.
- Working with an average rate of return on equity component.
- Visualizing a non-volatile & rather linear debt fund returns.
- Assuming that the PPF and LTCG (Equity) will be tax free forever.
- Ignoring tax on annuity/pension.
And the list
goes on and on and on………
None of that is said above
will affect your plan as much as you will.
Yes. You and me---we.
It is you and me that can and will
make or break the retirement plan--
Indians have been
traditionally inclined towards gold and real estate as fail safe investments.
You just cannot go wrong with them in your portfolio.
As if one house used for self-occupation
is not enough, people buy a 2nd. or even a 3rd. house for investment.
Most people do not realize that many so-called one-time purchases come with
regular expenses tagged! One common example is maintenance charges and
other expenses associated with a bigger house.
Nothing wrong with this,
everyone wants to enjoy the pleasure of life as they earn more. However
(there is always a however!), any increase in annual expenses (other than that
caused by inflation), must be immediately taken into in the retirement
plan-something that is given a pass by.
Of course, an increase in
annual expenses obviously means we need to invest more each month for building
a bigger retirement corpus to account for our present lifestyle.
One of the basic tenets of retirement
planning is that you will maintain your present lifestyle into retirement. Calculations
for retirement corpus are based on current expenditures and hence, present
lifestyle. The idea is to arrive at a retirement corpus that will at least live
till you do.
A good figure to compute in spread
sheet. What most people fail to realize is that the key requirements of a
retirement corpus intended for a future lifestyle, imposes constraints on the
individuals present lifestyle.
It is quite common for us to regularly
upgrade our car, televisions, mobiles etc. in tune with changes with our incomes.
Nothing wrong in that except that it is quite likely that our incremental annual
expenses increase at a rate much greater than assumed inflation.
Unfortunately, these additional expenses would increase with inflation too!
It would be prudent to recognize
that most lifestyle changes are difficult to reverse and hence must be factored
in while planning for retirement. In absence whereof rest assured that your
life style in your twilight years will not be as comfortable as your present
one.
Hence, beware of yourself. The
choices that you make today can impact your future in more ways than you can possibly
imagine.
- Pre-eminence of real estate in the total portfolio; and
- Zero tolerance to present lifestyle
are not the only factors that
influence your retirement plan.
Watch this space for more as
picture abhi baki hai.
