Planning for retirement? Think
One of the sights we have been witnessing quite
frequently in the international media is protests in different parts of Europe
about enhancing the retirement age. Considering that curtailing government
spending has been on top of the agenda of most of these countries, raising the
retirement age by a few years to reduce pressure on the pension system has been
touted as a solution by many.
Considering that we work closely with investors on
their financial goals, one of the most common things we hear from clients,
especially younger clients, is their desire to retire at an extremely young age,
ranging from 35 to 45. For most individuals, this would probably be close to the
prime of their careers, unless they are sportspersons and been forced to retire
earlier due to physical limitations.
As we delve further into understanding this desire
to retire earlier, we find that the most common answer we receive is probably,
"not retire in a classical sense but essentially not having to work for the
As financial planners, we find that most investors
tend to start working seriously on their financial plans between the age group
of 30 and 40. Considering that life expectancy in India is increasing rapidly
and medical advancements make it very likely that we will live much longer than
we currently envisage, creating a corpus of that size can be quite a challenge.
To put it into perspective, investors expect savings and investments made over
10 to 15 years to support them and their families for a 35-40 year period.
Remember that inflation could also structurally move
in India to a much higher level vis-à-vis where it has traditionally been due to
Whilst successful entrepreneurs and employee
beneficiaries of stock options tend to be the most common group of individuals
to achieve this aggressive target that they have set for themselves, most other
investors need to enhance their targeted retirement age so that they can build
up the requisite corpus.
Since the rate of return on their investment
portfolio is another variable that investors can aim at changing if they wish to
achieve their target, we strongly advise that investors look at investment
strategies that, although riskier over shorter time frames, have the potential
to outperform over longer periods. Investments in asset classes like equities
for a retirement portfolio should be looked at very closely for their potential
to deliver superior returns over longer time frames.
In addition to the quantitative aspects of
retirement, we also urge investors to answer two questions when they plan for
1. What would your ideal day be like when you
2. And will this continue to be your ideal day if
you do this day after day?
We find that these answers are far more difficult
for most investors, as a spreadsheet cannot answer this for them. We urge
investors to think deeply about these answers today so that they are prepared
for retirement not only financially but holistically.
Vishal Dhawan is a certified financial planner by
profession and founder of Plan Ahead Wealth Advisors Pvt. Ltd. He can be reached
Vishal’s rich experience of 15 years in the
financial services industry has led him to frequently write columns and appear
on television, including CNBC and Bloomberg UTV. He shares his insights and
views in various leading publications, including the Wall Street Journal, Economic Times, Indian Express, Reader’s
Digest, ET Wealth, Asian Age and Deccan Chronicle. He is also a
member of the Financial Planning Association, USA.
Plan Ahead is a wealth management and financial
planning firm that works with both Indian and NRI investors to help them achieve
their financial goals and manage their wealth. (www.planahead.in)