RIQR Retirement

Investment Objective :

“When you adopt to age, shouldn’t your retirement plan too” Retirement planning is one of the most ignored topics among the working population because most people feel that retirement is far away and nearer term priorities seem important. Once they get near the retirement date, many people realize that they have not saved enough for their retirement and fear losing their financial independence. Retirement is the culmination of the decades of hard work you put in your career. This should be the golden period of your life and you should be free from financial worries.

“When you adopt to age, shouldn’t your retirement plan too”
Why is retirement planning important?

Inflation: Inflation reduces the purchasing power of money over time. If inflation is 5%, then Rs 100 can buy only Rs 95 worth of goods after 1 year. After 10 years, it can buy only Rs 60 worth of goods and after 20 years, only Rs 37 worth of goods. Your needs will remain the same but your money will be worth less and less. In order to fight inflation, it is very important that your money also grows over time. You need to plan for inflation.

Rising medical costs: With advancing age, health related problems are a concern for senior citizens. However, cost of quality private sector healthcare is increasing at a very fast rate in India. Some studies show that inflation in the cost of medical expenses is around 15% per annum. A serious illness can eat a big part of your retirement savings and put you under considerable stress.

Falling interest rates: Senior citizens traditionally rely on bank fixed deposit and government small savings schemes for their regular cash-flows. Over the last 20 years, interest rates of government small savings schemes have come down significantly. As our economy (GDP) grows, money supply will also grow and interest rates will come down even further. You need to save more and create a larger corpus in order to generate sufficient income to meet your post retirement expenses.

No pension: India is largely an un-pensioned society. Private sector employees in India, unlike western nations like United States or United Kingdom, do have not have safety net in the form of a national pension programme. They need to create their own post retirement income stream by saving and investing systematically during their working lives. As such, retirement planning should be one of your most important financial goals during your working lives.

How much you need for retirement?

We have many responsibilities in our working lives like taking care of children’s education, caring for aged parents, paying home loan EMIs etc. Many people erroneously assume that most expenses will go away when they retire but they are mistaken. Financial planners suggest that 70 – 80% of expenses remain even after retirement. Suppose your monthly expenses are Rs 1 lakh and you are 10 years away from retirement. Ten years later, your expenses will be Rs 1.6 lakhs assuming 5% inflation rate. If your post retirement expense is 70% of your pre-retirement expenses, then your monthly expense post retirement will be Rs 1.1 lakhs.

You will need a corpus if Rs 1.7 Crores to generate a monthly income of Rs 1.1 lakhs if you get 8% return on investment. We ignored inflation and taxes when estimating the corpus. If we assume that your retired life is 25 to 30 years long and inflation is 5%, you will need a retirement corpus of Rs 2.5 – 2.7 Crores to maintain financial independence throughout your retirement. In addition, you should also have some emergency funds set aside for medical or other exigencies. If you want to leave behind an estate (inheritance) for your loved ones, then you need to have an even larger corpus.

Ideal for Investors:
  • Investors keen to save for retirement
  • Follow a life cycle-based approach to retirement savings
  • Salaried employees looking for regular savings avenue for retirement
  • Self-employed who usually don’t have post-retirement benefits accruing to them
  • Investors seeking an alternative to traditional retirement saving avenues