Retirement planning is a process of setting retirement income goals and following them with the actions necessary to achieve those same goals. An easy rule of thumb says that you’ll need to replenish 70% to 90% of your pre-retirement income to lead a good retired life. This means if you’re making ₹ 70,000 a month (before taxes), you might need ₹ 49,000 to ₹ 63,000 a month in retirement income so as to enjoy the same standard of living you had before retirement. For example, if somebody plans to retire in next 15 years, then retirement planning would have to include creating a system to actually generate ₹ 49,000-63,000 per month income from year 2034 when they retire.

If you are targeting 70% of your pre-retirement income for post-retirement usage, then you need to not only save, but also invest properly. This would mean investing in high-return assets so that your savings grow at faster rate.

Why do you need retirement planning?

One day you are celebrating your first salary and in a few decades they are cutting cake to wish you all the best for retirement as you say good-bye. Yes, life moves that fast.

Before you know, you will be facing daily living expenses, grappling with medical costs, and fighting inflation. There are always emergencies in old-age. So, having a sufficient corpus to deal with all these is crucial. Retirement is an important reality for everyone. But it is easy to lose track of a long-term goal. This is precisely why you need retirement planning.

Here are top four reasons why you will need retirement planning

• Medical emergencies - With rising age, come new and health problems. Medical expenses make a huge dent in your finances post retirement. Studies show medical inflation is 14-15% a year. This means health costs potentially become 4 times of what they were just ten years ago. Take a proper retirement plan, and never lose sleep over long and multiple hospitalization. With a large enough retirement kitty or pension, post-retirement you will always be well taken care.
• Inflation - Price rise is a universal fact. The effect of inflation, even if it appears small in the short-term, can be massive over a few years.
  A 5% inflation means Rs 100 will have the value of ₹ 95 a year later. But, a 5% decline is quite serious. Twenty years later a sum of ₹ 21 lakh will have the same purchasing power as ₹ 7.5 lakh today if inflation grows by 5% every year. In growing economies like India, the consumer level inflation can in fact be more than 5%.
  Even when you are retired, some costs will always remain. You may not have EMIs, or you may not eat out much, but you will still need to buy groceries, medicines, and pay off utility bills. A good pension plan must be bought in such a way that anticipated inflation is accounted for.
• No state sponsored pension - Private sector employees in India do not have a fallback option like a state sponsored pension. Unlike the US and UK where they have state-funded/sponsored pensions or social security benefits during retirement, India so far does not have anything similar matching that scale. This means you are on your own when you are retired. This is both good and bad.
  The good part is that your own pension strategy gives you the flexibility to buy a retirement plan and remain in control. Government funded pensions are a fixed amount that can remain unchanged for years. There are some small benefits for senior citizens, but there is no outright income replacement solution from the government. So, engaging in retirement planning is a smart thing to do. Once you know the goals, invest in a pension plan and get a self-sponsored retirement income!
• Nuclear families - Long gone are those days when the elderly could rely on monetary support from a big family. The culture of the Indian families is changing as couples are going nuclear and staying separately. They are also having less children. Twenty-thirty years down the line there may not be many relatives to take care of you as a senior citizen. Children, when they grow up, want to relocate for jobs elsewhere. Plus, the pressure to earn money and have a decent lifestyle would not give them enough time to allocate for parents and elders.
  Hence, it is vital to plan your retirement without expecting any financial help from your immediate family. There is a lot of mental satisfaction in having the ability to buy your own spectacles, medicines, provide food for yourself and also your spouse. Why should it change when you are 60? A retirement plan allows you to always keep your head high and live a retired life full of dignity and respect.

When to Start Retirement Planning?

Like all planning, retirement planning too needs to be done beforehand. With the average work life being somewhere between 30 and 35 years, the best retirement plans are often started at the early age. This does mean that retirement planning and execution happens across different life stages. When done right, you enjoy the fruits of the retirement plan set in motion years ago.

Imagine a 25-year old starts planning for a retirement corpus of `2 crore. She will need the money when she is 60 years of age, or 35 years away. By saving and investing just `3500 per month in an investment avenue that fetches 12% per year, the 25-year old will cross the target and attain `2.3 crore. But if she decides to start the same plan just 5 years later i.e. when she is 30, she will reach just `1.2 crore i.e. half the corpus by 60. A small delay of 5 years makes a world of difference as you can see. So, it pays to start early.

A proper retirement plan will be divided into investment phase, accumulation phase and withdrawal phase. In the first phase, you save and invest money. This will likely be in your 30s to early 50s.

It is important to choose the contribution and duration of contribution during investment phase. For instance, saving `3 lakh a year for 20 years is not tough for somebody with `12 lakh annual income. Saving 25% is achievable. Be practical about saving because your financial responsibilities may go up later due to home loans, marriage and children’s expenses.

As we near the retirement age, one has to ensure that the entire corpus slowly moves away from risky assets to safe assets. When you reach retirement, the focus should be on milking this entire corpus. This can in the form of staggered withdrawals or monthly income source. Choose a retirement income plan that allows these flexibilities.