I know for a fact, 20 years back our grandparents never planned or even thought of retirement. Back then life was quite simple and you do not had to worry about things like inflation, uncertain economy and more importantly break down of joint family system.
But today, a working professional who lives in urban India had to think about retirement when he is in mid or late 30’s. Especially, in a metro cities like Mumbai & Delhi where cost of living is so high, you cannot afford to overlook your retirement plan.
You must take your retirement plan very seriously or else you would have a hard time living in a metropolitan city once you grow old.
This particular blog post emphasizes on the need of a retirement plan. We discuss why it is essential to have a plan in first place, then when you should start planning, followed by a calculator that will calculate your expenses when you retire and finally helping you to choose a right retirement plan.
Why You Need a Retirement Plan
This paragraph explains how it is important to have a retirement plan in first place. I would present you with genuine reasons why you cannot afford not having a retirement plan.1. Privatization of Indian Economy
Government and other economist think that if a country has to progress then its economy has to be privatized. It means more companies should be owned by private sector rather public.And we know that private companies do not have any pension plan unlike public sector companies.
Therefore, in light of this reality, there would be no pension scheme in a private company after your retirement. Hence there is a great need to have your own retirement plan in place.
2. Increase in Life Expectancy Ratio
In year 1970, the average life expectancy ratio of an average Indian was some 50 years. However, in 2013 it is well over 65 years and it is expected to rise up to 75 years in 2040.Hence, you are going to live more and you cannot survive without a retirement plan.
3. Increase in Dependency Ratio
Dependency ratio is nothing but ratio of old population to young population. Right now we are young population however in next 40 years the number of old people would grow substantially because of several reasons.Hence, if dependency ratio is 6% now then in 2050 it would be some 15% to 20%. Therefore, a lot of older people would need a retirement plan.
4. Decline of Joint Family
In recent years, the bad thing that has happened to India is decline of joint family. Earlier if you were old and do not had a retirement plan then you had a joint family which could have taken care of you.However, now in urban India we see rise of nuclear family hence older people have to take care of themselves hence a retirement plan is must.
When to Start Planning Your Retirement
This is very important to know the right age at which you could start planning your retirement. The golden rule of a retirement plan is that it is never too soon planning your retirement. In other words, the early you plan your retirement the better it is.Right time for your retirement plan is divided into three time period in your life cycle. They are
Mid 30’s
First one is mid 30’s. Well it is too early and usually people do not plan retirement at mid 30’s but you have to if your income is too little.You know that you cannot afford to buy a home and in future you would not have enough money to live a decent life once you retire.
Then you need to plan as early as possible. People with uncertain job, who live on daily wages, must start planning as early as possible.
Mid 40’s
Normally, a working man or woman starts his or her retirement planning at the age of 45 years. Mid 40’s is the age where most of the people start planning their retirement.If you are working and still paying for your home or mortgage then mid 40’s is the right time period to start planning your retirement. You need to consider various expenses that you are incurring now when you start planning your retirement.
Late 50’s
You can only afford to plan your retirement in mid or late 50’s when you are financially very sound. It means you have enough money in your bank account that you don’t have to worry about paying for home because you own it and you really do not have any major expenses.Only then you could afford to plan your retirement so late in your life.
You must figure out the category in which you fit in and start planning your retirement.
A Calculator for Cost of Living in Your Retirement
Let us see what would be the cost of living once you retire. Your retirement year would depend upon your age right now.I would consider two scenarios.
a) First one is after retirement you want to live a modest life - Simple life, expenditures would your daily groceries.
b) Second is you would like to spend a lot on various things – A life where you would love to travel, expenses like marriages etc.
Scenario a)
Different variables that you have to take in account are
- Your current age
- The age you want to retire
- Inflationary expenses like your groceries
- Non-Inflationary expense like you EMIs
- Annual Inflation rate
Link is http://www.moneycontrol.com/personal-finance/tools/retirement-planning-calculator.html
Similarly you can calculate for
Scenario b)
The result would depend upon the money that you would like to spend every month.
How to Choose a Best Retirement Plan
There are many life insurance companies which offer retirement plans for you. You need to talk to their customer support or an insurance agent before you choose a right plan.However, there are some common factors before you choose a plan from any of these companies. Such factors are
Vesting Age
Age at which you choose to start receiving your pension.Annuity
Your regular monthly pension that is payable to you once you cross the vesting age.Sum Assured
The amount that a nominee is going to receive if there is a death during the accumulation period.Accumulation Period
Period when you pay premiums to accumulate funds for retirement.Surrender Charges
Charges that are levied by the insurer if you end the policy before the date of vesting.Participating Plans
Plans that give a share of insurer’s profit to the policy holders. The share is not fixed and totally depends upon financial performance of the company.Ulips for Old Age
Ulips are unit linked insurance plans.Charges Levied
You need to consider charges levied by various companies.You have to keep in mind all these factors before you choose a retirement plan from a company.
Some of the companies are LIC, MetLife, ICICI etc, they all have some great plans.
How Serious Urban India is About Retirement Plan
As a matter of fact urban India takes retirement plan very seriously.About 90% of them want to save enough money for their retirement. Some 5% of them are not sure and only 2% to 3% would be asking help from their children.
Hence, it is very clear that majority of urban Indians would like to plan for their retirement ahead.
No more they are looking up to their children as they want to be independent.
Therefore, this blog sheds some light on the importance of having a right retirement plan. The sooner you plan about your retirement the better it is.
Never, depend upon on your children, after retirement you should live with dignity. Hence, start planning for your retirement from now on.
