With rising inflation, increased medical expenses and no regular salary slips, it becomes important to be adequately prepared for retirement. A recent newspaper article stated that number of senior citizens in India has gone up from 71 million in 2001 to 100 million in 2011 making 14% of the population.
What is retirement planning?
As a financial planner one of the most important questions in any questionnaire that is put forward to any investor is: when do you wish to retire? More often the immediate and spontaneous reply is ‘tomorrow’. However, retirement is not an age or a time after which someone would stop working. What it actually means is being financially strong enough to support himself and his dependents till the expected life mortality. This has to be a well thought out decision, the foundation of which has to be laid as early as the time when one starts earning his first salary.
Why an advisor needs to pursue retirement planning?
With the average life expectancy going up, it is indeed very important today to plan for a comfortable and financially sound retirement. What I believe is that post retirement is a time to live all the dreams that were never lived during the working days. So, planning for retirement should rank high on every salaried individuals list so that they can enjoy life post retirement with no financial constraints.
But is it that simple? What do we expect someone in his late 20’s or early 30’s to think about - mobile phones, laptops, cars, parties or investments for future retirement?
More often than not, investments are thought about when the companies HR ask for the client’s income tax declaration and it also ends with the IT declaration. I often hear people telling me that “the investments for this year are complete, as my limit for section 80c of 1 lakh is done.” The question is however whether this is sufficient. How can tax regulations decide what your client’s future goals would be?
The answer is - it is not sufficient and tax regulations cannot decide the future goals. The failure on client’s part in understanding the importance of planning for retirement makes it a responsibility of the advisor. An advisor should be savvy and persistent enough to make the retirement planning a priority for an investor.
What does an advisor need to do?
The young working generation might not like their advisor or planner telling them to invest with long term goals in mind when they are more focused on acquiring comforts. Most clients start thinking about their retirement either when their peers buy a policy or when they reach their mid 40s. So while the client’s income has increased so have his commitments. Also, the client in 40s have a few years left for retirement planning and even a high amount of investment will not offset the required amount for a comfortable retirement.
Being an advisor and planner you are aware of the importance of financial security. So, you have to be persistent in getting your investor to start investing in their late 20s and early 30s. The concept of power of compounding is known to all and we all understand that a long term investment might end up yielding higher returns and reduce complexities for short term volatility (if invested in equity markets). It is not about the time of investing but the time an investor remains invested.
Start planning for your investors’ retirement now so that they can enjoy life post retirement with lesser financial constraints.
