Why retirement planning is MUST for you?

   Guaranteed pension, assured return from government schemes, relatively low inflation and the security of a joint family, all the four pillars on which our previous generation's retirement planning rested have either gone or will disappear soon.

   Tomorrow's retirees will balance high income with uncertain returns, better means of capital appreciation with longer lifespans, and all new earning and career options with an urge to hang up their boots early. All this without compromising on their lifestyle. "My wife and I want to retire when we are 50 and pursue our hobbies," says 35-year-old telecom professional Dhiraj Gupta.

   For the Chandigarh-based Guptas, the challenge is not only a shorter horizon to save for their retirement but also a longer period of withdrawals. Advances in health care facilities and improvements in standards of living have pushed up life expectancy in India.

   The average Indian now lives for up to almost 65 years, compared with 55 years in 1980. The life expectancy of urban dwellers, who have better access to medical care, is even higher at 72-75 years and will only rise in the coming years. This means a retiree would need a nest egg big enough to sustain him for up to 30 years.

   The other big challenge for retirees comes from an enemy that is both stealthy and relentless, inflation. Just as compounding works to inflate your corpus, inflation eats away at its value. The sum Rs 1 crore may seem like a lot of money today but over 20 years, even a low inflation of 5% can reduce its value to Rs 35 lakh. A low-to-moderate inflation rate of 5-6% does not attract attention of the working class.

   That's because incomes usually outpace the nominal increase in prices of products and services. "The average Indian investor is not aware of the risk of losing purchasing power due to inflation. This can be detrimental to his financial future," says Tushar Pradhan, CIO of HSBC Mutual Fund. And retirees, who no longer earn but depend solely on the returns from their investments, feel the pinch most.

   Worse, some of the products and services that you depend more on as you age have seen the steepest rise in prices. Healthcare costs, for instance, have risen sharply in the past 10 years, rising by almost 14% a year. For retirees, this is a major drain on their finances and one which will demand a larger allocation in their monthly expenses as the years go by.

   "Medical insurance won't help if the condition doesn't require hospitalisation," points out Vivek Rege, financial planner. Then there are other age-related expenses necessitated by the nuclear family. One would need a full-time domestic help, a driver, a cook.

   The good news is that despite all these challenges, future retirees have a better chance of reaching their desired goals. It may not be easy, but accumulating Rs 4-5 crore over the next 20-25 years is also not impossible. There are retirement solutions that fit into every wallet size and suit every risk profile.

Source: Economic Times