In India, it has been a culture that once the parents retire, the
children usually take care of them, financially as well, but things are
changing and I am quite sure, we would want to be financially independent, post
retirement, and not really rely on our children for financial support(at least).
You may be wondering, why I have this fixation about retirement and retirement planning when I am still just 28 yrs young?
Well, this is why....
"तीन साल पेहले " 3 yrs back........
I was a little surprised when my parents, who were a part of this great financial industry for 23 long years did not financially plan for their retirement. Of course they had money saved up in different financial and non financial products, but the plan was missing. It was only after I had a discussion with my father(the aggressive investor) that he shared with me the following.....
"पन्नास हजार तरी नाका रे महिन्याक, रिटायर जातकच? " - that, he'd require something like
Rs.50,000/- as his post retirement monthly expense, and I jokingly asked him ……
"तुमका किदयाक पन्नास हज़ार, तिस हजार पुरो ना ?" - Why do you require Rs 50,000 per month, isn't
Rs 30,000/- enough?
Having recently cleared my final exam of Certified Financial Planner, I was very much excited (like a little kid) to draft a retirement plan for my parents as soon as possible.
Here's how we did it:
1. Emergency Fund: One can debate about the necessity of an emergency fund in a retirement plan, but I feel that this is as important as an investment plan, especially when you have a long post retirement life expectancy of about 20-25 years. So we allocated around 10 months worth of household expenses to this. Further, a part of this was invested in Liquid funds offered by mutual fund companies and the rest was parked into a savings account.
2. Medical Insurance: This was one very important product which was missing in the kitty and also could have cost us a bit because of the higher age. After some research, I came across a very good proposition from a public sector insurance company with an attractive annual premium. We further topped this up with a Critical Illness Cover, where, only the major illnesses are covered for a fraction of the premium.
"तीन साल पेहले " 3 yrs back........
I was a little surprised when my parents, who were a part of this great financial industry for 23 long years did not financially plan for their retirement. Of course they had money saved up in different financial and non financial products, but the plan was missing. It was only after I had a discussion with my father(the aggressive investor) that he shared with me the following.....
"पन्नास हजार तरी नाका रे महिन्याक, रिटायर जातकच? " - that, he'd require something like
Rs.50,000/- as his post retirement monthly expense, and I jokingly asked him ……
"तुमका किदयाक पन्नास हज़ार, तिस हजार पुरो ना ?" - Why do you require Rs 50,000 per month, isn't
Rs 30,000/- enough?
Having recently cleared my final exam of Certified Financial Planner, I was very much excited (like a little kid) to draft a retirement plan for my parents as soon as possible.
Here's how we did it:
1. Emergency Fund: One can debate about the necessity of an emergency fund in a retirement plan, but I feel that this is as important as an investment plan, especially when you have a long post retirement life expectancy of about 20-25 years. So we allocated around 10 months worth of household expenses to this. Further, a part of this was invested in Liquid funds offered by mutual fund companies and the rest was parked into a savings account.
2. Medical Insurance: This was one very important product which was missing in the kitty and also could have cost us a bit because of the higher age. After some research, I came across a very good proposition from a public sector insurance company with an attractive annual premium. We further topped this up with a Critical Illness Cover, where, only the major illnesses are covered for a fraction of the premium.
3. Investments: This part of the plan was extremely crucial as our priority was to generate a steady flow of income. The investments were streamlined and diversified using various products like debt mutual funds, bank deposits, equity mutual funds, equity shares. Broadly, an asset allocation strategy of 60% debt and 40% Equity was followed which was to be re-balanced every year.
4. Estate Plan: We made sure, nominations were in order so that, in case of an untimely death, transmission of the investments would be smooth. Also, for transfer of Fixed assets, a will was written.(more on this later).
The problem area....
Applying the simple concept of time value of money on their investments made some startling revelations. By the time they were 75, they would have used up all of their retirement savings with nothing left for the remainder of 10 years.
कहानी में ट्विस्ट
"छे महीने पेहले" 6 months back....
Luckily, my father started receiving pension because of his 20+ years of service in a public sector bank and this changed the problem area in their retirement plan. The gap of 10 years in which the fund availability was questionable was now, just filled.
This was an absolute eye opener for me. Not everybody can be this lucky. Now you can understand my fixation for retirement planning. It brings me back to this(simple and self explanatory) image in my first post on friday financials,
So, if retiring rich is your destination, then clearly, the most important thing you need to do is start investing early and let the power of compounding work its magic. Remember, its the little contributions you make initially that really make the difference, rather than the bigger ones made at the end.
Ninad Kamat
CERTIFIED FINANCIAL PLANNERCM
www.letsmakeaplan.in
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* Compounding image source: www.valueresearchonline.com
4. Estate Plan: We made sure, nominations were in order so that, in case of an untimely death, transmission of the investments would be smooth. Also, for transfer of Fixed assets, a will was written.(more on this later).
The problem area....
Applying the simple concept of time value of money on their investments made some startling revelations. By the time they were 75, they would have used up all of their retirement savings with nothing left for the remainder of 10 years.
कहानी में ट्विस्ट
"छे महीने पेहले" 6 months back....
Luckily, my father started receiving pension because of his 20+ years of service in a public sector bank and this changed the problem area in their retirement plan. The gap of 10 years in which the fund availability was questionable was now, just filled.
This was an absolute eye opener for me. Not everybody can be this lucky. Now you can understand my fixation for retirement planning. It brings me back to this(simple and self explanatory) image in my first post on friday financials,
So, if retiring rich is your destination, then clearly, the most important thing you need to do is start investing early and let the power of compounding work its magic. Remember, its the little contributions you make initially that really make the difference, rather than the bigger ones made at the end.
Ninad Kamat
CERTIFIED FINANCIAL PLANNERCM
www.letsmakeaplan.in
* Compounding image source: www.valueresearchonline.com
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