The Concept & Advice on Retirement Planning

Mr. Gerard Colaco: When we talk to youngsters about retirement planning, very often the response we get is, "Oh, I have another 30 years to go for retirement." They do not realise that while retirement may be 30 years away, retirement planning should commence when an individual draws his or her first pay cheque.

You are responsible for your financial comfortable retirement, not your employer or the government. Just as an emergency fund is a private insurance policy, you must also have a private retirement fund, independent of the one run by your employers. In fact, over two or three decades, your private retirement fund could very well dwarf your company retirement fund.

In the Indian context, the two best possible avenues of retirement investments are the Public Provident Fund and Equity Linked Savings Schemes (ELSS) of mutual funds. The PPF gives tax-free returns of 8% per annum, compounded annually. ELSS investments give approximately 14% CAGR returns over a period of 10 years or so. Unfortunately, non-resident Indians cannot invest in the PPF.

The best investment for retirement would be systematic investment into diversified equity funds. Nothing will give you better returns over the long run. The amount you invest need not be large. Investing regularly over several decades is important. You can start with even a very low amount of say Rs 1,000/- per month and then increase it gradually once your liquidity situation improves. There should be two separate retirement funds for husband and wife. You have to work out exactly how much each of you can save very comfortably per month for retirement.

When you calculate the amounts to be invested for retirement, take a lower figure with which you are comfortable over a long period than a higher figure which you may not be able to sustain.

Investments into retirement avenues are for the very long term. A period of ten years would be considered a short term for retirement investments. Like an emergency fund, a retirement fund is also sacred. Money in this fund should never be withdrawn until the actual date of retirement. The only exception to this rule is if there is a threat to the life of any family member and existing insurance and emergency funding prove themselves to be insufficient. With proper financial planning, the need for you to ever dip into retirement funds will almost definitely not arise.

What we repeatedly see in investors who do proper financial planning is, that many of them do not touch their retirement corpuses even after retirement. These corpuses are left as inheritance for their successors. Their other investments or the income from their retirement corpuses generally see them through life comfortably.