Have you secured your financial future for retirement?
If not, you are probably not alone.
A recent India Retirement Index Study revealed that retirement planning is a primary concern for urban Indians, with a staggering 9 in 10 worrying about their savings not lasting through retirement. To make matters worse, only 2 out of 5 people invest toward retirement, leaving most of the population unprepared for their golden years. With the poor state of social security in India, personal retirement planning is the need of the hour.
The question is: will your savings last you through your retirement years?
The data doesn’t offer much reassurance. It shows that 50% of urban Indians believe their savings will be depleted within the first decade of their retirement years. Even more concerning, a shocking 1 in 4 people haven’t considered retirement planning. These statistics highlight a significant gap between the importance of preparing for retirement and people’s actions to secure their future.
Preparing for retirement:
There are several myths about retirement planning, including the misconception that retirement planning is only for the elderly or the wealthy. An alarming trend is that 86% of respondents over the age of 50 years regret not starting to invest earlier toward retirement. This highlights the importance of starting early and the benefits of compounding. Retirement planning is essential for everyone, regardless of age or income level. The earlier you start, the better off you’ll be in the long run. Delaying planning can make it harder to achieve retirement goals.
Retirement planning is an urgent need for urban Indians. With 45% of respondents believing their children will aid them in old age, it’s essential to take steps towards financial independence and not rely solely on others. There has been a rise in incomes in recent years, leading to a rise in savings. However, it’s essential to consider whether your savings are being invested correctly to achieve your retirement goals. Many investors often neglect retirement planning, leading to a lack of projection for the required corpus post-retirement. There is a need for more education and awareness regarding retirement planning, income, expenses, and financial goals evaluation.
The table above illustrates the impact of inflation on a corpus of Rs. 1 crore over a 10-year period. As per the calculations based on an average inflation rate of 5%, the corpus value will gradually decrease due to inflation. As a result, the same Rs. 1 crore will lose approximately 40% of its value by the end of 2033, making it worth only around Rs. 60 lakhs in today’s terms. This highlights the importance of investing and planning for retirement to ensure that your corpus retains its value and provides sufficient financial security in your golden years.
The same is true for investors who regularly invest but do not diversify their assets across asset classes. Indian households that save still continue to prefer Bank Deposits over financial asset classes. The current scenario of falling interest rates, rising inflation, and taxation on maturity will lead to a significant reduction in savings over the years. This is why it is crucial to pick the right asset mix. Proper planning and investment can help all budgets achieve a secure retirement.
Investment mistakes investors often make:
Miscalculating life expectancy and corpus required: One of the most critical errors in retirement planning is miscalculating your life expectancy and the required corpus. Planning your retirement till a certain age, such as 75, may seem like a good idea, but what happens if you outlive that age by a decade or more? This is known as longevity risk, and it can leave you without enough money when you need it most. To avoid such a situation, it’s essential to be aware of the pitfalls and take the necessary steps. Many people assume their expenses will drastically reduce in retirement, but that’s not always true. While costs like transportation may decrease, medical expenses are likely to increase. In fact, many other expenses may arise during old age that you may not have anticipated.
Parking their corpus in physical assets – Traditional investors still prefer to invest their hard-earned money in tangible assets rather than financial assets. Real estate and gold were popular choices. While gold does offer liquidity, real estate can be difficult to liquidate in time of need. It also brings along with it liabilities that can cut a hole in your pocket through upkeep, annual maintenance, periodical taxes, and more. These smaller chunks of expenses in real estate holdings can deteriorate your savings over time.
Investing in guaranteed returns products alone – Investors often feel anxious about the thought of retirement with no income inflow, and tend to seek out investments that offer guaranteed returns, even in the early stages of their investment journey. While these investments can provide a stable base for your corpus, they should be chosen only when you have already accumulated enough wealth and are nearing retirement. During the accumulation phase, your investments should be exposed to asset classes that offer higher returns, as this is the time when you can take on more risk and potentially achieve higher growth for your portfolio.
Diversification is the key to safeguarding your retirement corpus. Beat inflation by diversifying your investments, balance safety, liquidity, flexibility, and returns by diversifying your portfolio, guard against reinvestment risk through diversification, and use diversification to protect and grow your investment portfolio.
When planning for retirement, it’s essential to work, save, and invest to build your retirement corpus. However, it’s equally important to factor in inflation and falling interest rates when calculating your corpus, as equally important as owning a home for long-term stability, using tax benefits for retirement planning investments, and insuring your health, life, and critical assets.
As you approach retirement, you must shift from amassing wealth to managing it. This can be challenging, as you need to begin withdrawing money from riskier assets and moving towards more stable ones with guaranteed returns. It’s also essential to diversify your portfolio, maintain liquidity for emergencies, ensure flexibility in your investment options, and manage taxation to avoid depleting your retirement corpus. Finally, post-retirement, you will need to create a steady inflow of funds to support your lifestyle, so it’s essential to plan for this transition in advance.
It is time to take control of your retirement planning and secure your golden years with the guidance of our experienced financial advisors. Contact us today.