Retirement planning in India is the art of managing your short-and-long term finances both during the working years and retired life. It involved an in-depth analysis of your current expenses, financial position, and future cash flows in order to develop a complete roadmap. As per the statistics, most of the population is between 25-35 years. With the government’s decision to stop to the pension of all the employees after Jan 2004, retirement planning is of paramount importance. For people working in the private sector, planning for retirement is more important to become financially independent post-retirement. For some professionals, working in the 70s is the norm, but professionals in fields such as acting or modeling have to plan for early retirement. There should be different retirement planning for different situations in order to create sufficient capital for a living beyond retirement.
Some of the factors that may impact your retirement:
- Inflation: The inflation rate reduces the value of the corpus every year and reduces the purchasing power.
- Falling rates of fixed income instruments: Earlier, the fixed deposits fetch around 9%-10% rate of interest per annum. However, the situation has changed now, with the interest rates hovering around 6%-7% per annum. A passive investment strategy helped in building the retirement corpus with higher interest rates earlier. The present generation should manage the investments proactively to sustain a better life post-retirement.
- Increased life span: The life expectancy is increasing with the better medical technology available so you need to build sufficient corpus to maintain the same standard of living
- Family status: In India, the joint family system was prevalent and could bank on their extended family to take care of their needs. With the employment opportunities available at different locations, the trend of nuclear families is on the rise, which shifts the onus on you to ensure proper financial planning
- Increasing medical cost: The cost of the medicines is increasing every year and you should earmark a certain amount towards it.
Wealth accumulation strategy:
Like all the good things, wealth creation takes time. The earlier you begin, the bigger corpus will be created. Unfortunately, many people across age groups start late and do not follow a focussed approach. An early start with a disciplined approach can help you create a large corpus due to the power of compounding over the long-term. Also, planning the finances early can ease out the pressure and plan better. If you start late, then the amount will be increased. For example, investing in Public Provident Fund (PPF) of INR 5000 every month, it will amass INR 1 crore in 35 years, which is currently compounded at 8% per annum.
To sum up, you should start building retirement corpus as early as possible and plan effectively for the future. However, it is better to consult a financial planner and strategize your investments.