Retirement Planning

Golden Years of Retirement

Mr. Joshi and Mr. Das have retired from their service of almost 30 years.
Both friends have been looking forward to these golden years and wish to
be able to pursue their dreams on retirement.

Mr. Joshi wishes to travel Mr. Das wants to start

the world and see different his own venture once he
countries and cultures. retires.

Each person has his own idea of spending his retirement years.
Retirement Planning is all about being able to realize these dreams
while leading a comfortable retired life.
 Reality Check

Mr. Joshi has been able to amass a large retirement

corpus in addition to retirement benefits from his
employer. He is comfortably able to withdraw from
his corpus for meeting his routine expenses and
also fund his travels.

Mr. Das has invested his retirement corpus into his

business. His investments earn him interest but that
does not match his household and new business
expenses. He is finding it very difficult to meet ends.

What is the reason behind this difference?

Is there anything that Mr. Joshi did differently from Mr. Das?
 Retirement - A Key Financial Goal
Mr. Joshi

Always had retirement as a key goal.

Believed in planning ahead for future
needs and contingencies.
Started saving for retirement as soon
as he began his career at 25 years.
Mr. Proactive

Mr. Das
Believed in living in the present.
Thought that there’s enough time to
plan for retirement.
Prioritised other goals to retirement.

Mr. Laid-back Started retirement planning in the

mid of his career.

Retirement is about planning for about 30 years of retired life

and should be a top priority while planning finances.
 Compounding works wonders when you start early
Began investing at age 25 with Began investing at age 40 with
Rs.6,000 in the first year. Rs.15,000 in the first year.
He increased his investment He increased his investment
by 10% annually. by 15% annually.

Mr. Joshi Mr. Das

Start Year 1983 1998
Notice how
Period 35 years 20 years @ 14% growth rate,
Mr. Joshi’s investment
1st Year Investment Rs.6,000 Rs.15,000 could fetch Rs.1.05 crore
as against Mr. Das’s
Investment Increased annually by 10% 15% investment value of
Rs.39.94 lakhs
Total Investment Rs.16.26 Lakh Rs.15.37 Lakh though there is
not much difference
in the total investment
8% Rs.39.95 Lakh Rs.25.08 Lakh made by both.
Assumed
11% Rs.62.83 Lakh Rs.31.14 Lakh
Return @

14% Rs.105.00 Lakh Rs.39.34 Lakh

The above table is for illustration purpose only to explain the concept of starting investments early & shall not be construed as indicative yields/returns of any asset classes.

Investing early allows the investment to get

benefit of compounding over a period of time.
 Cover for inflation
Inflation eats into the return made from investments.

Real return = Return from investment – Inflation rate

Return from long term investment should be such that it has

the capacity to earn over and above the inflation rate.

If your monthly expenses are Rs. 20,000 today,

see how much you will need to spend after...

Rs. 28,000 Rs. 39,000 Rs. 77,000 Rs. 1,52,000 Rs. 2,99,489
5 years 10 years 20 years 30 years 40 years
Note: Assuming an inflation rate of 7%

Since retirement was a long term goal, Mr. Joshi thought it wise to make
the risk-return trade-off and invest in higher risk assets for the long term
in contemplation of better returns.

Return from investment should first keep up with the inflation rate
to increase the real purchasing power.
 Underestimating inflation
Estimating Inflation does not only involve estimating increasing prices, but
also the changing life style and price to be paid for the changed lifestyle.

Things of luxury in the past Changed lifestyle also calls for

are now necessities. increased expenses towards
necessities.

Mr. Joshi understood that to keep up with changing times, he would

have to incur these expenses and needed to make provision for the same.

Fixed income investments will fall way too short to take

care of expenses that increase manifold.
 Strategic allocation to Equities
During the Accumulation (Earning) phase Mr. Joshi
made a strategic allocation to equities with a small
allocation to fixed income.

He gradually shifted allocation to low risk fixed income

investments with lower allocation to equities towards
retirement age.
Equities tend to be volatile in the short term but
have given superior inflation adjusted returns
over the long term.

Investment of Rs.10,000 made 39 years ago

If invested in the BSE Sensex, If invested in a FD at the rate of 8%,

value now would be Rs.26.55 Lakh value now would be Rs.2.01 Lakh
Note: BSE Sensex values taken as on Mar 31, 1979 and Mar 31, 2018. Source: www.bseindia.com

On retirement, he remained invested in equities to keep up

the retirement corpus against rising prices.
Historical performance indications and financial market scenarios are not the reliable indicator for current or future performance.
Past performance may or may not be sustained in future. Investors are requested to consult their financial advisor before making any investment decisions

Strategic allocation to equity in the early years of investing can

ensure healthy retirement corpus.
 Evaluate investment choices
Provide safety
but lower Returns
Mr. Das limited his investment
choices to traditional investments
such as gold and fixed deposits.

Mr. Joshi chose equity. To minimize

risks in equities, he chose a diversified
equity mutual fund and signed up for a
systematic investment plan.

Auto-debit of a fixed monthly installment from his bank

Disciplined way account towards retirement goal.
of investing Every now and then he would top up the investment with
accumulated savings.

Choose an investment that is able to provide inflation adjusted returns,

while offering convenience, systematic approach and flexibility in investing.
Consider mutual funds over traditional investment options.
 Save Big if not early

Mr. Das was laid back and lost valuable time.

Mr. Das could have done well had he invested
larger amounts when he began investing late
in his 40’s.

If he would have set aside 30% to 40% of his

annual earnings for retirement, he would have been
in a much more comfortable zone at retirement.
It helps to make additional lump sum top ups to
retirement funds during the peak income phase.
Incomes usually peak out during the middle of one’s career.

To be able to match up to the lost time and magic of

compounding, save in a big way if not early.
 Social security
EPF Declared Interest Rate CPI Infla�on Rate

14%

12%

10%

8%

6%

4%

2%
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
EPFO declared interest rate vs CPI inflation rate

Mr. Joshi realized that he was not eligible for pension or any other social security
benefit of the government. Mandatory retirement benefit schemes such as the
Employees Provident Fund has not been able to provide significantly higher returns
over inflation. Apart from the monthly PF contributions, he saved additionally in
growth oriented assets to create a large retirement corpus.

It is best not to rely on social security for retirement.

Exposure to equity oriented assets is the key to create
long term growth.
 Saving for 30 years

Increased Life Expectancy.

The retirement kitty needs to work to provide

regular income for the next 25 to 30 years.
Income stops at retirement, but inflation
continues to erode real income from the
retirement corpus.

After retirement, Mr. Joshi remained partly invested in equities and

partly in fixed income mutual funds that enabled regular payouts.

Mr. Das, however, continued his FDs. Soon, the interest payouts
seemed too little to suffice the rising expenses.

On retirement, the corpus should continue to grow and compound in value so

that it fights inflation, while the investor withdraws money from it as required.
 Smart things to know about
retirement planning

Get a retirement plan drawn up by your financial advisor.

He will help you to estimate your required retirement corpus
and guide you to get there.

Under no circumstances should you touch the retirement corpus.

Withdrawing money midway to fulfill some other goal will affect

the returns in the long run.
 To be able to Comfortably Retire at 60

20’s Invest 15-20% of your annual income

80% in equity + 20% in fixed income

30’s Invest 25-30% of your annual income

70% in equity + 30% in fixed income

40’s Invest 35-40% of your annual income

60% in equity + 40% in fixed income

50’s Invest 45-50% of your annual income

50% in equity + 50% in fixed income

Disclaimer: Investors are advised to seek independent advice from a professional financial planner/advisor for their retirement planning goals.
 Plan Your Retirement Today With
Retirement-Oriented Mutual Funds
We often leave retirement planning for another day. But the fact is,
expenses will only rise due to inflation as you get older.
Retirement oriented Mutual Funds are a great vehicle for building
retirement corpus and by investing in these funds,
you benefit in more ways than one:

Small amounts every month can Choose debt and/or equity

help your investments grow oriented plan

Tax benefits U/S 80C of the

Debt provides stability and equity
Income-tax Act, 1961 for notified
creates wealth
pension schemes

Get a fixed monthly income post

retirement with Systematic
Withdrawal Plan (SWP)

Disclaimer : Investors are advised to seek independent advice from a professional financial/tax advisor as regards Retirement Planning.
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