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Holistic retirement planning

Not just retirement planning, but any planning should be done by keeping in stock the surprises of life. Those who don't account for them often complain of sudden outflows of money, which shake the grounds of retirement planning. To make sure that you will stick to your plan, you have to account for the following things while planning.

india Updated: Feb 28, 2013 15:40 IST

Retirement is more of a life stage rather than an event. Every retirement plan should address the complexities of generating income to support their spending. Research shows individuals that who have a plan end up doing better (e.g., financial performance), and feel more secure and confident.

The steps involved in holistic retirement planning are setting a retirement goal, making a fool-proof plan, and sticking to it to ensure that you will end up with a corpus for live happy.

Goal Setting

Setting financial goals is the first and most important step in managing your retirement portfolio. Establishing a retirement goal allows you to proactively manage your financial life instead of struggling to reach an undefined, and possibly unobtainable, mark. Below is a guide to help you get started:

1.When Do You Plan to Retire? (Time):

Determining retirement age is important because it gives an estimation of time you have to achieve you goals. The more time you have to achieve your goal, the more time you have to save and maximize compound growth.

2.How Much Money Will You Need:

What's important here is to estimate what is the amount that you are looking at? This is the important to plan investments as until we don’t know how much we are aiming at, it will be groping in the dark.

3.How Much Can You Afford to Invest:

Your annual contribution limit provides good starting points to determine this. The contribution limit is determined by your annual income and unused portions of savings, which can cumulate, expanding your contribution room. Once you know your contribution room, establish how much money you have already saved towards retirement. Do you have unused funds that could be added to your current holdings? Are there balances that could be consolidated? After you understand your annual limit, see what amount you can afford to steadily contribute. Here, you need to understand that in the gusto to earn more, the planning should not be impractical as pushing the boundaries can easily bring frustration and depression.

4.How Fast Will Your Money Grow:

Knowing your investor profile and the associated asset mix - the proportion allocated to cash, fixed income and equities - will help you to estimate the returns. The table below approximates long-term returns:

Investor Profile
Average Rate of Return
7.25-9% (For 10-year)
18-23% (For 10 years)
Depends on proportion
Term Deposits

*The returns mentioned are taken from various news reports; hence, need to be checked before investing.

Also, your personal risk tolerance should be considered when determining how aggressive you are in your investment choices.

Fool-proof planning

Sometimes, your investment plan does not allow you to reach the ending value you had in mind. The following tips may help:

Regularly save as much as you can:

If you are short on your goal amount, try to invest more on a regular basis. This may require you to re-evaluate your budget.

Time can be your greatest ally:

If you can't reach your goal in the desired timeframe, use the slider to see the result of retiring a few years later. It is because an early start to retirement planning always helps to give you the advantage of compounding. The early you start, the more you invest.

Consolidate incomes and ask yourself how much money do you really need?:

Verify your estimates of income received in retirement as well as your estimates of costs. You may have overlooked other sources of income - such as pensions or inheritance.

Provide for contingencies:

Most of us tend to underestimate our retirement needs. Provision for medical emergencies with inadequacy of medical insurance in old age requires financial provision. Lack of government social security schemes and retirement benefits to self-employed and private sector employees creates requirement for more provision for contingencies after retirement.

Think that you will live long:

This is true with increased life expectancy. Now you will have more years of life after retirement. Thanks to medical advancements. So it is better to plan for the additional years and avoid living frugally in old age.

Beat the inflation:

Inflation affects the personal finance needs of the working class, but pay rises could help them resolve it to a certain extent. However the retired have to save more to reduce the impact of inflation. You may be thinking that , let’s say, Rs 1 crore is enough for you to retire, but if we account for inflation, Rs 1 crore after 20 years will be approximately equal to half the amount.

Provision for increased medical expenses after retirement:

Most of us underestimate medical expenses after retirement, with these expenses being inevitable in old age. A consideration of your family’s general health, family history of certain genetic disorders, and the class of hospital you get treated would help in proper estimation for medical insurance.

Provide for your spouse, who may outlive you:

It is inevitable that this need should not be overlooked. Your spouse and dependents need to live a secure financial life after your lifetime. Taking up insurance policies during your working life and well thought out retirement planning will take care of your dependents and spouse financially.

Realize you need to be vigilant about sources of retirement income:

Sometimes we may be ignorant of benefits on retirement like provident fund, gratuity and other benefits. In India the lack of social security schemes after retirement makes it necessary to invest more in good income generating sources for steady flow of retirement income. The advice of investment consultants, along with financial education and information contributes to good financial standing after retirement.

Stick to it

Another important thing that you have t keep in mind is that you have to stick to your plan. Most of us take the pain to make a fool-proof plan finds lethargic to stick to it.