Are you ready for your Retirement ?

Recently I was talking to a client who was approaching his retirement very soon – both of his parents are alive. I asked “do your parents stay with you” & he politely said “NO, we stay with our parents”. This one line created lot of respect for the client but the question is will we be that lucky in our retirement days.

These days retirement is a real challenge due to low pension or no pension, shift towards nuclear family system, longevity of life is increasing, rising medical expenses etc. It may sound a bit odd but actually most of the people don’t realize they will have a shortfall in their retirement corpus & when the realization happens it is too late. Most of the clients when thinking of retirement planning, have simple calculations in mind that they need X amount every year & for this they need 12.5X retirement corpus assuming a rate of 8%. But they ignore their biggest enemies – inflation & tax. These enemies actually starts hitting them after 4-5 years & after retirement they don’t have much choices other than adjusting their life style. (Check videos on Retirement Planning)

Do you know how much you need for retirement??

Current Age 25 35 45
Retirement Age 60 60 60
Income(I)/Expense(E) 300000(I) 800000(I) 1500000(E)
Retirement Corpus Required Rs 6.35 Crore Rs 4.29 Crore Rs 5.57 Crore

If you don’t believe these figures or would like to check your retirement figures – download software from here.

74% of the Indians are financially prepared for Retirement: Survey

According to survey done across 17 countries by Canara HSBC Oriental Bank of Commerce Life Insurance. Indians are second best in Asia Pacific with 74% ‘feeling’ adequately financially prepared to handle their retirement.
I don’t know why insurance companies are on survey drive. (I know but I don’t want to mention) Some days back ING did one survey on financial literacy & showed that India Ranks at no. 2 out of 10 leading nations in financial literacy. I really doubt both the surveys.

Let’s check some findings of retirement survey:

  • 33% of Indian respondents see retirement as a whole new chapter of life as well as a time for rest and relaxation. Only 22% associate it with financial hardship. (33% are optimist or 22% are pessimist)
  • Just 7% of respondents believe they will be worse off than their parents’ generation in retirement, though 51% are worried about being able to cope financially in old age. (51% are worried then how 74% can be financially prepared – is there some calculation mistake or typo)
  • Older respondents are less enthusiastic about retirement, and are far more likely to associate it with financial hardship. (older respondents know something that young guys don’t know)
  • 14% think that their personal pensions will provide their largest source of retirement income, while 13% will rely on other forms of saving and investments. (I don’t know about rest 86% but these guys are going to have problem “Individual Personal Pension Schemes”)
  • One in ten people in India expect to continue working in later life to provide an income for them. (Few people have already realized the hard facts of life)
  • 76% of respondents have financial plans in place – far more than the worldwide average of 50% – while 57% of Indians have also sought professional financial advice. (This is awesome – 76% HAVE FINANCIAL PLANS – do even 7.6% Indians know what is financial planning. No comments on professional financial advice or what you call the insurance agent’s advice)
  • The internet is emerging as a prominent source of financial information and advice for people in India, with 50% of respondents using official financial websites to guide their decision making. (It is a good news for TFL but what I write is information & even other websites provide information – but information is not KNOWLEDGE)
  • Independent financial advisers (33%) and banks (21%) are the most common sources of professional financial advice in India. (Check what kind of professional advice people are getting – Banks & Independent financial advisers)

For individuals who want to take action now to improve their financial well-being later in life, there is a simple 5-step checklist based on the research:

  1. Establish some clear goals, both short and long term
  2. Benchmark yourself
  3. Establish a comprehensive financial plan
  4. Implement the plan
  5. Keep your plan under review

These are great 5 points but are these based on the survey. Is this survey done by world’s no. 1 online survey company – Speak Asia.

I am not against these surveys – these guys have definitely done some hard work but it doesn’t show the picture that we see every day.

Why there is always a positive attitude shown when talked about personal finance

When someone reaches me for financial planning – I always ask when you would like to retire & what should be your retirement corpus. Most of the people reply they would like to retire not later than 55 year of age & very few dare to write corpus required above Rs 1 crore. If you have checked figures in starting of the article there is a big difference.

This difference is actually a gap between what we think (Perception) and what the reality (Actual) is. But when people reach near retirement, their perceptions of what they can expect to experience grow increasingly negative.

This is also part of this HSBC Survey (Global Report) – this is one of the best slides of survey. I don’t think it needs any explanation – this tells what I am trying to convey in my last 900 words.

Retirement Planning

Mark Twain said “Plan for the future, because that’s where you are going to spend the rest of your life”.

Also Read : When you are not ready for your retirement

Would you like to share reasons – why people fail to plan for retirement.

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14 COMMENTS

  1. Hi Hemant
    All these surveys are bogus and of no use.We know the reality is quite different.There is no point in giving any importance to such surveys.The sample size used in such surveys is very small and not representative.Economic status of our parents was much better even without investing in equity.They were wise enough to invest in PPF, Post Office Schemes , Bank Fixed Deposits, property and gold.Fortunately they were in professions where there is practically no retirement age.They had no life or medical insurance but still enjoyed long and healthy life.Yes we are living in the house of our parents.

    • Hi Anil,
      You are right these surveys are done on very small sample – this particular survey was done with just 1000 people. In country like India where we have 600+ districts in India & 550+ MPs 😉 – 1000 is a small number to represent us.
      I agree with you that our parents never invested in equity & still had great time but they were prudent enough to have very less or no loan – they lived conservatively throughout the working life & even after retirement. Our parents set some stands for savings & India is counted in one of the biggest savers but I think reverse counting has already been started.
      But I don’t agree with your insurance point – ask those people who lost their parents in young age.

    • Hi Anil,

      I partially agree with your views n partially disagree. Those days our parents never invested in equities because FD’s n other govt schemes used to give 10 % rate of interest and it was good enough to beat the inflation successfully. As a result healthwise they were more better than today’s generation because they know that their money is safe. But today its a different case. Its a corrupt govt. Inflation is at its peak and FD’s n other govt savings scheme have been reduced to 8 to 9 %. So people have no choice but to take a calculated risk of investing in equities which can beat inflation in longer run. But that risk also causes some tension as a result average life of a person is reduced to 60 which was 80 in earlier days because of the mental tension people have to go with. Hence they go for medical insurance and term plans as well.

  2. Hi Hemant,
    Good article but if you can elaborate more on factors to be considered while retirement planning. I am looking for the factors like how to assume the number of years me and my wife will be living after my retirement (my wife is also a dependent on me), I know it will be difficult to say that number but I would like to know whats the better way of getting closer to that number. Also, Inflation now a days is 8% to 10% so does it makes sense when people do Retirement planning assuming 6% or even less Inflation?

    • Hi,
      Life expectancy will depend on many factors including your current age, where do you stay & health conditions.
      Regarding inflation you can take general 7% & for medical/education 10% – it won’t make much difference if you work on only on inflation adjusted returns.

  3. Hi Anil,

    Any survey remains survey untill we understand the importance of objective. Yes I admit too that our parents are better financial manager than we poeople. Lets have the comparison. They may have or not the ancesstoral property but they kept on saving for the particular goal. They never withdrawn money from there savings untill required. They opened our rd at the time of our birth.

    But we young people in any field be it Investing in equity, results in job or purchasing a car or buying any flat has only one goal i.e show of.

    Hemant is quite right we need to prepare ourselves for future so that our presents run smoothly

  4. Most of us Indians are poorly prepared for retirement, there is no argument on this point at all, nowadays the risk is not of dying early, the risk is of living long and a said by a friend of mine “after retirement everyday is a Sunday(holiday)”
    All retirement calculations being done now are on assumed inflation of 6 or 8%, what happens if we have double digit inflation? If we use a retirement calculator and input all the details honestly the figures returned by the calculator are shocking to say the least. As far as the surveys which are mentioned above are concerned, if 74% of Indians were actually fully prepared for retirement by having Financial Plans in place, all CFP’s would go out of Business! Having an Insurance Policy or a Mediclaim cover is not Financial Planning. Having enough life and Medical cover along with a balance of regular and Increasing Investments in Equity , Fixed Income and Gold(In India the ladies of the house are doing that for us) is a very good way of taking care of your retirement needs.

  5. What do you think about pension plans? There are a lot of products in the market – from Aviva (Dhanvridhi), Metlife (Monthly Income plan), Birla etc.

    If the objective is to build a corpus for your sunset years, then would it not make more sense in continuing to invest in equity and debt funds (basically a balanced portfolio using MFs) rather than go in for such pension plans? Aren’t the returns likely to be higher?

  6. Hello Hemant Sir,

    I am 35 years old and would like retire at the age of 60 years with minimum amount of 3 crore (after calculating considering 10% avg inflation p.a. and based on current lifestyle). Do you think it would be possible to accumulate that much amount and how much should be my savings per month?

    Regards,
    Harshavardhan

  7. pls let me know icici bank DEMAT represantative shoe me icici retiarement benefit solution plan. pay 1 lakh yearly for 7 year and after 15 year get 2 lakh per month .and 30 % also to nominee is this good plan , also they show me icici wealth builder ulip ,pls gv ur views sir, urgently waiting

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