Welcome to this new series on Retirement Planning. In this series you will get to learn the importance of retirement planning, why and when to plan for retirement, what are the Avenues you can use to achieve the required corpus, so post retires you no longer need to work for money without compromising your current lifestyle, and where to park you retirement fund efficiently along with risk assessed.
What is Retirement Planning?
Retirement planning is not about the number on an excel sheet that says if you set a few thousand aside every month and invest sensibly you can retire with the amount you need. Instead, it is more about understanding your current living expenses, what you need and what you don’t, and whether you are happy with your current living standards or not. Considering all these, estimating future financial needs that you incur and preparing for them typically retirement planning means.
Why Retirement Planning Is Important?
No doubt money is a necessity in every person’s life, to fulfill his/her basic needs in life and we all work for money. In your day-to-day life, you have your food expense, you need to pay your monthly room rent, you need clothing, you need to pay your electricity bills, your phone bills, your internet bills, and your medical bills whenever you are sick, How long do you think you can continue working for money to fulfill your needs. Post your active work life, do you ever imagine to ask money for all these your basic life needs from anyone. For a month OK, but can you ask them for the same basic needs as yours every month. This is what exactly happens when you fail to plan your financial future after retirement. You need to depend on others maybe your son or daughter every single month for your needs even if you don’t want to. Isn’t that painful?
The Irony of Life
Do you expect that they can help you with money every single month? The answer truly depends on the financial status of your child. What if due to rising expenses you become a liability to them? I shouldn’t say that and I didn’t mean it. But what if this is the case? Do you want to spend life blaming your child? Do you think of a day being spent without your mobile recharge, Do you spend a day without internet? If your answer is No, then you shouldn’t be blaming your child for their lifestyle commitments and living expenses.
Your EPF/PPF Savings as an Excuse?
You may feel like, don’t exaggerate the situation. We will be having our retirement corpus from EPF that we have accumulated throughout our employment. What if you are self-employed? Ok for self-employed, on a positive note, you may be having some savings in PPF for your retirement.
A Short Story Of Your Neighbour
Let us discuss a person who started earning decent money at 25 in the government sector. Since his job was secured, he didn’t think much about his financial future and spent his life taking care of his parents, going on vacation with his wife and children twice a year, and fulfilling the needs of his family. By the end of the month, he saves what he has left. By turning 40, he wishes to have a home of his own. He took a loan of say 40 Lakhs and a down payment of 10 Lakhs(which he saved till date), and with a tenure of 20 years. By the time he turns 50, his children would probably want to pursue their higher studies, for which he plans to spend 10 Lakhs. And by the time he is 58 years, his children may become independent and start earning and his daughter gets married.
Now, by the time he retires he left with the home he built, his children are busy with their lives, and he receives his retirement corpus say, 60 Lakhs from Provident Fund(Hopefully he never takes his EPF balance throughout his employment). How long does he survive with the money he received? Will he be able to maintain the same standard of living? Of course, now he won’t be having any loan EMI to be paid, any children’s education and marriage responsibilities to take care of.
And after the age of retirement, possibly he might also need some health care. Since government jobs offer unlimited health insurance there is a chance that he didn’t even think of purchasing an additional health insurance policy too. We all know the rising healthcare costs in India. The sad part is, that his unlimited health insurance is not valid after retirement. And at this age, insurance companies don’t usually issue policies for him and his wife too. At this moment what is the family situation in case of any health crisis? His retirement fund would be drastically reduced, results he is forced to cut down his lifestyle expenses.
Throughout his life, he has been a responsible son, a loving husband, and a successful father. With the lack of pre-planning for his retirement, now he needs to cut down his lifestyle and live frugally, and at times when he wants to relax finally, he might end up thinking about money.
Let us assume of a person who is into low-income levels and he retired at the age of 60 in 2020, with a retirement corpus of say, 30 Lakhs, and unfortunately, He is one of the people who was infected by the covid. Do you think he would think about his life or money? Would he now survive with the money left after your treatment?
Is EPF alone sufficient for your Retirement Planning?
Now, do you think that amount you saving in EPF/PPF will be sufficient for your life post-retirement? The interest rates for EPF and PPF are 8.1% and 7.1% respectively. Undoubtedly they are good schemes for retirement. But the question is, Do the retirement corpus you get through EPF/PPF alone sufficient for your living expenses post-retirement?
We will see the math for this calculation in the next post in this Retirement Planning Series.