Starting early would ensure that your salaried clients are able to build a sizeable nest egg for their retirement.
Unlike self-employed individuals or entrepreneurs who have the flexibility of deciding their retirement on their own, salaried individuals need to plan their retirement more diligently.
The first step in retirement planning is identifying the corpus required for retirement. Advisors say that least 10% of annual income should be set aside to build a nest egg for retirement. If the income keeps increasing, it is advisable to increase savings as your clients may desire to maintain the same lifestyle during retirement.
Financial advisors suggest that one should ideally plan their retirement in their 30s. Starting early would ensure that your clients are able to build a sizeable retirement kitty. “Retirement planning is not a priority for many. They are more focused on meeting their short term goals like buying house, car, foreign tour, etc. Salaried individuals should start early and invest regularly,” points out Hemant Rustagi of Wiseinvest Advisors.
The retirement needs of the private sector workforce differ from those working in public sector organizations. While people working with PSUs get a regular pension after they retire, private sector workforce do not have this safety net. “Those working with PSUs have an added advantage of getting a pension and EPF while private sector employees normally have only EPF. Thus, private sector workers need to save more and start early since just EPF will not be enough,” advises Hemant.
Another vital aspect of retirement planning is choosing the right asset class. Financial advisors recommend equity funds as an ideal vehicle to build a retirement corpus. Nikhil Kothari of Etica Wealth Management says, “Instruments like EPF and gratuity should be treated as debt allocation. For creating long term wealth, we recommend mid-cap funds or a mix of large and mid-cap funds.”
Besides, Nikhil advises that investors can also look at the retirement plans offered by AMCs. Currently, Franklin Templeton, UTI and Reliance have retirement funds. Both FT and UTI’s pension funds invest up to 40% of assets into equities. However, Reliance Retirement Fund (Wealth Creation Plan) invests a minimum of 65% of its assets in equities and a maximum of 35% in debt and money market securities.
Suresh Sadagopan of Ladder7 Financial Advisories has a different view, “It is not necessary you have to invest in a retirement product to save for retirement. Clients can invest in equity funds which have a good track record to build their retirement corpus.”
Vishal Dhawan of Plan Ahead Advisor says that advisors should see to it that clients don’t use early withdrawal facility to fund other goals. “It is necessary for salaried individuals to ensure that their EPF is used only during their retirement and not to fulfill any other goal. One needs to supplement it by investing in equity which tends to suitable for long term investments, especially for people saving for retirement.” Vishal says that salaried individuals can also invest in government’s NPS.
To sum up, here are few important pointers which your clients should follow for building a retirement corpus:
- Start early and invest regularly through SIPs, preferably in equity funds
- Increase SIP amount as income grows
- Make sure that your clients don’t withdraw from retirement corpus to fund another goal
- Ensure that your clients have a health and life insurance to protect themselves from any unforeseen events
- If a client is starting late, it is advisable to reduce expenses and invest more
