How to invest NOW so you can retire with Rs 1 crore
As per the Universal Declaration of Human Rights social security is a concept which states that everyone, as a member of society, has the right to social security and is entitled to realisation, through national effort and international co-operation and in accordance with the organisation and resources of each state, of the economic social and cultural rights indispensable for her/his dignity and the free development of her/his personality. In developed countries the concept of social security exists in different forms. For e.g. in the United States, social security refers to old-age, survivors, and disability isurance (OASDI) federal programme. In India the onus of planning for sustenance during the non-earning years lies on the individual. The key to a life free from financial worries is proper planning of finances with a long term view keeping the goals in mind and also providing for financial exigencies.
One is in the need of financial security during the periods in life when one is not earning; there are generally two such periods.
1. Before getting into employment
2. After retirement
In the first period, the problem is not so acute as the person is young and capable and can do one thing or the other to take care of her/his sustenance. In addition in most of the cases, the person gets the support from immediate family members or relatives till the time s/he gets employment.
It is the second case which poses the problems in front of an individual and state as it has to provide for the non-earning population. Improved healthcare and medical facilities in India have prolonged average lifespan. This is coupled with a growing trend away from joint family structure which leaves retired couples to spend their retired life on the strength of accumulated corpus, with little support from other sources. The average life expectancy in India is already in the region of 70 years. The demographics of India paint too rosy a picture. As per Census 2011, India's population below the age of 25 exceeds 50 per cent and that below the age of 35 exceeds 65 per cent. The population between the age group 15-64 is a little over 60 per cent currently, while the population over 60 years is just over 7 per cent. As this trend continues there is a growing requirement to take measures immediately to sustain during the prolonged retirement period due to the factors mentioned above. This would essentially mean that by 2050, we shall have nearly 9 per cent of the estimated population of 160 crore. i.e. around 15 crore individuals in the age bracket of above 60. It would be unthinkable to secure the financial well being of a major chunk of this expected number. It is also not advisable for the State to bear such burden, as has been lately observed from the experience of some European countries and the USA in this regard. So, people who are in early as well as middle stages of active service today should be encouraged to start their retirement planning in the right earnest. It must also be understood that retirement planning as a process is a subset of a broader financial planning process with retirement being one of the financial goals. Thus employing financial planning approach will ensure that the above mentioned concerns are also take care of.
Retirement planning is an exercise which requires investing discipline and continuous monitoring. It is important to start however small it may be. Mentioned below are certain factors which if taken properly will make the process of planning for retirement relatively smooth.
Plan early (See the table alongside)
It is always preferable to start early, as the remaining time and the risk taking capacity of the individual makes the attainment of retirement goal easier as compared to the case if left for a later stage. The following table explains this aspect, where a required corpus of Rs 1 crore at the age of 60 is sought to be accumulated through monthly investments in a mix of assets giving an overall return of 12 per cent per annum.
Pre and post retirement expenses
There needs to be clarity in terms of the amount of money required post retirement to sustain the expected life style. This would be very important to decide the amount to be invested regularly and the amount available for other financial goals at the time of financial plan construction.
Since retirement is the most distant goal, the other short term goals might take precedence and one has the tendency to dip into retirement savings for fulfilling other goals. Also, the investment discipline should be religiously maintained at a robust scale to achieve the designated retirement corpus.
Consult a financial planner
People tend to plan for their retirement on their own without a complete understanding of the needs and all the factors applicable. It is therefore advisable to consult an expert like a certified financial planner or CFP professional as s/he is equipped to deal with the similar situations.
In addition to the above factors, if one has not been able to plan for the retirement till a later stage in one's career, then the acquired usable assets like house that one lives in, or other tangible assets like gold can be used to provide financial security as they can be monetised for creating cash flows without being sold through innovative products like reverse mortgage loans and loan against gold etc.
Another point which can be mentioned over here is creating another source of income like an additional house which can be let out to generate income in form of rent or buying a commercial property during the working life of an individual can be extremely helpful in providing respite from financial apprehensions during the later stages of life.
If one can develop an interest or an expertise which can be utilised during the retirement period to generate cash flows by working for lesser number of hours. Examples could be training, consultancy or teaching which a person enjoys.
Thus we can see that, if finances are managed properly during the working life of an individual, it is not very difficult to create financial security for self and loved ones provided one is aware of the financial situation , needs and goals.
The writer is working with Financial Planning Standards Board India (FPSB India) in the capacity of Vice Chairman and Chief Executive Officer. The views expressed here are personal, and do not necessarily represent that of the organisation. FPSB India is the sole marks licensing authority for the CFP marks in India, through agreement with US-based FPSB Ltd.