Why Retirement Planning Is Important

When young couples make financial plans, their goals revolve around buying a home, vacations, a car, their child's education and lastly retirement. Almost always retirement is the least prior goal in their plan while the reverse is true for those in their forties. Irrespective of how old you are, retirement is the most important goal to plan for. One of the discretions we make as financial planners is to always put, first emergency fund and then the retirement fund as the most prior goals irrespective of clients own preferences. I am listing a few reasons for doing that - Our life expectancy is rising: This means that with increased life you need money to last you for that increased lifespan. Our life span has risen from 44 years in the 1940s to 74 years in 2011.That is the average age. Most individuals have a working life of around 30 odd years would have an equivalent number of retirement years. Of course one can work till one dies, but that should happen out of choice, and not compulsion. We don't have adequate social security: Less than 10 % of our working population has access to provident fund and other retirement funds. Even for those who do, the benefits may not be enough to sustain their current standard of living. The government provides us with neither pension nor medical benefits after our working lives (though it doesn't forget to take taxes on our income for as long as we are working and earning) Nuclear families: Today educated Indians are not location bound. It is most likely that parents and kids no longer live in the same locality, town or even country. Most of the couples I meet, do not wish to depend on their children post retirement. The breakdown of the joint family system has meant that overheads and general living expenses that was once shared by many family members, has to be borne by self and spouse. While your returns compound, so do costs: the cost of living and most importantly medical expenses have been rising at a rate far in excess of the increase in our income levels. Unless you account for inflation, in both your choice of investments and in the amount to save, your retirement plan could be going downhill. No one gives you a loan for retirement: There is no way to fund your lifestyle post retirement except from your own money. Your income streams from salary will shut down and unless you own assets that bring in cash, you will pretty much have to resort to stuff like reverse mortgages (which I consider to be a kind of last resort). The golden rules of investments apply here as well. Invest early, regularly, adequately and in assets that generate real returns. Being too conservatively would result in an inadequate pool of money for your golden years. This means that assets like equities and real estate make for the best retirement assets. -----------------------------------------------------------------