Retirement is one of the most important life events many of us will ever experience. From both a personal and financial perspective, realizing a comfortable retirement is an incredibly extensive process that takes sensible planning and years of persistence. Even once it is reached; managing your retirement is an ongoing responsibility that carries well into one’s golden years.

While all of us would like to retire comfortably, the complexity and time required in building a successful retirement plan can make the whole process seem nothing short of daunting. However, it can often be done with fewer headaches (and financial pain) than you might think - all it takes is a little homework, an attainable savings and investment plan, and a long-term commitment.

Have you thought of retirement?

Or you feel it’s too early to think about it…!!!!!!

When I asked a friend of mine about his retirement plans he laughed it off, saying “You must be kidding. Who is thinking retirement? It is far away,” says the 28-year-old engineer.

I am sure he is not the only one not thinking about his retirement. For most youngsters who have decent salaries believe in living for the day.

I can vouch for it from my interactions with a lot of young people who come to me for their financial planning.

I am sure all of us would want an early retirement with a nice house, fancy car and the works. But very few of you take it seriously and actually start working on it. For some it does not even feature in their future vision, just as the above example who had started laughing when I talked to him about retirement planning.

However, the key to retirement planning success is to start early and gain the benefit of the power of compounding.

Let’s take an example to understand it better.

Current age= 28 years

Current annual Income= 4, 80,000

Current annual household expenses and tax = 3, 00,000

Current annual Loan payment= 1, 80, 000

Current savings= NIL

Retirement age= 60 years

Inflation (assuming) =6%

Return on post retirement savings= 8%

Return on pre retirement savings= 10%

Life expectancy= 85 years

Post retirement expenses=70% of the expenses in the year prior to retirement. (We consider a general decline in his needs & wants in the post retirement period)

We assume that his lifestyle remains the same throughout his life then considering inflation into account his yearly expenses during retirement will grow upto Rs.19,36,016 p.a.

So actual expenses during retirement period will be Rs.13,55,211 p.a.

To continue same living style during the post retirement period he needs to accumulate Rs. 2,73,16,001 taking into consideration inflation adjusted rate of return.

(Real rate of return= (1+return/1+inflation) -1 *100)

So to meet his future expenses he needs to start savings from today.

Yearly savings=Rs. 1,35,807

Monthly savings=Rs. 11,317

The importance of retirement plans

It is advisable one should start when one is young. It is not necessary to start with a bang. You can start with small amounts and increase it as your income increases. Also, if you start early and you have time with you, you can gain advantage of high returns and maximize your investments by investing in equities or equity mutual funds.

People today generally live longer and spend more years in retirement. They, therefore, need to save as well as protect their savings, more to cover the risk of living longer than their life expectancy. Many of today’s retirees need to invest for growth as well as income, so that their assets will continue to support them long into the future.

In conclusion I will say for most of us “retirement” conjures images of sitting in the garden of your house with your partner for life, playing with the grandchildren, or hearing the sounds of their laughter as you read the morning news paper. No more troubles in the world, no more effort to overcome the many obstacles that come in everyone’s life, just the joy of knowing that you have arrived into this heavenly state of peaceful bliss - of financial nirvana.

The quality of life you want in the future will depend on what you contribute in the present. Planning your retirement is an ongoing process. It requires discipline, self study & time. You will probably want to retire happily with personal and financial peace of mind. The last thing your retirement should be is stressful for you or your family.

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This entry was posted on Thursday, February 12th, 2009 at 3:42 am and is filed under Financial planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.