Retirement planning is one of the most neglected area in financial planning for most professionals. This happens simply because the employed population is often complacent with the thought that they are covered under employer’s retirement schemes.
Non-professionals, such as businesspersons, self-employeds and cultivators think it is useless because they don’t have any fixed retirement date.
Yet some others avoid it, simply because they are afraid of thinking about the old age. But the fact is that, retirement comes to everybody and if planned properly, retired life can be the most pleasing phase of one’s life.
Here comes the question: How should one plan for a retired life or what are the key factors to be checked while planning for retirement? The key factors to be kept in mind in retirement planning can be listed as followed:-
Inflation: Due to the continuous inflationary twirl, the cost of living is always on the rise. A fixed post retirement earning cannot meet one’s requirements for a long time. If you are an employee, you should always check what type of retirement scheme you are covered with. Many employers prefer to give group pension scheme coverage (contributory or non-contributory) to their employees.
Under these schemes, a monthly contribution is deposited in the employees' account and after retirement an immediate annuity is purchased for the employee.
This type of pension coverage often misleads people because annuity payments are more or less fixed and don’t keep pace with the real earnings of the retired person. Therefore, a supplementary retirement provision becomes a must in these cases.
For the non-employed class (businesspersons, professionals and cultivators), their earnings do not cease altogether at a particular age. But in these cases also, a supplementary fixed earning is necessary after a particular age. But for the same reason, it is difficult to calculate a retirement fund that may be sufficient to cover the retired part of one’s life.
Going by an orthodox arithmetic formula, one’s retirement fund needs to be equal to "expected yearly expenditure after retirement/expected annuity rate.
Here, the numerator has a rising trend over time, while the denominator may have a diminishing trend. The denominator also depends upon the type of instrument, where the retirement fund is invested. In any case, the final planning has to be such that it can give a recurrently rising income (if not totally inflation proof) to the retiree.
Post-retirement liabilities: In addition to a regular income, there may be some lumpsum liability in the post-retired life. These liabilities should be previously planned so that any erosion from the retirement fund can be avoided.
Medical expenses: While a good mediclaim coverage is must for all elderly, the uncovered expenditures along with the mediclaim premium should form a part of expenditure list.
Need of income for spouse: The worry of income for the dependant spouse after the death of the earning partner also needs attention and can be taken care of by judicious investment of the retirement fund.
In conclusion, I have to acknowledge that this is only a very humble approach to deal with complex issues of life. The types of life insurance policies which are available in the market and the types of post retirement investments that may give a rising trend to your retirement income may be topics for future discussion.