Lakshmi and Manjunath were enjoying their golden years in Mangalore. Their evenings were dedicated to catching the sunset on the beach. Once a month they planned road trips to scenic spots along the Konkan coast. After all, Udupi, Goa, Gokarna, and Kerala were all a stone’s throw away. Manjunath enjoyed his trips to the temples in the morning and Lakshmi delighted herself with traditional Mangalorean recipes. After all those years, it felt good to be back home.
How did Lakshmi and Manjunath get to this serene spot? It was only through careful consideration, calculation, and construction that they could build a retirement corpus that would last. Years of continuous planning ensured that retirement would be blissful.
The Retirement Planning Process
Looking back, Lakshmi felt that retirement planning could broadly be classified into three stages:
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- Saving for retirement
- Preparing to retire
- Living in retirement
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Their approach to planning changed with each decade leading up to retirement.
Best Retirement Plan for 30 Year Old In India
When they were in their mid-30s, Manjunath brought up retirement. Lakshmi initially felt that it was too early to think about a life where they weren’t working. However, after talking to an investment adviser they agreed that there was no such thing as too early.
They were happy to note that they had already been saving for retirement throughout their whole working lives. Lakshmi and Manjunath religiously contributed to their EPF and invested as much as they could in their respective PPF accounts. Saving more towards retirement seemed too much of a stretch because they were paying down a home loan, saving to send their daughter abroad to study, and sending money back home to their parents. Their financial planner assured them that this was normal. The idea was to keep an eye on retirement and do as much as possible. So, they started a small SIP of a few thousand rupees in Mutual Funds. They committed to increasing the SIP by Rs. 1,000 – Rs. 2,000 every year.
20 Years Retirement Plan
When Lakshmi and Manjunath hit their forties, their careers took off. The bonuses they received for their work were larger than anything they had dreamed of. They felt confident about hitting their financial targets.
Lakshmi outlined a step-by-step guide to retirement that they had followed to retire peacefully.
Retirement Goals
After many iterations over the years, they managed to pin down what their ideal retirement life would look like. For starters both of them wanted to move back to their hometown, Mangalore. They had sold their apartment many years ago and needed to buy a new place. This time, they were looking at an independent house instead of an apartment. Lakshmi loved to travel and insisted that they have a sturdy car that would withstand the many road trips they would take. In their forties, Manjunath had taken to golf and was delighted that a new golf course was coming up in Mangalore. They had also decided to renew their club membership once they moved.
Retirement Goals:
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- Buy A Centrally Located Independent House
- Own A Car That Is Suitable For Long Distance Drives
- Provide For Golf Expenses In Retirement Corpus
- Renew Club Membership
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Retirement Spending Needs
Lakshmi and Manjunath started paying attention to their lifestyle and spending needs. They had grown accustomed to a certain standard of living and definitely didn’t want to compromise on that post retirement. Health-wise Lakshmi had early signs of blood pressure, while Manjunath was mildly diabetic. Lakshmi’s parents were ailing and needed full-time care.
What habits would they give up once they retired? And what habits would they want to start? Would they support their daughter after her education? How much should they provide for their parents after they retire?
Calculating Insurance Needs
When Lakshmi’s parents’ health deteriorated they learnt an important lesson in insurance. Three Lakhs barely covered anything. And it was too late for her parents to get a more comprehensive health cover. Both Lakshmi and Manjunath decided that they would err on the side of caution and be over-insured rather than under-insured. Their financial planner agreed too. After all, medical inflation was rising and it was better to be safe than sorry.
Their financial planner also insisted that both Lakshmi and Manjunath insure their lives. At first, it seemed unnecessary, but then they conceded to the hard facts that faced them:
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- Their daughter Adithi was still in school and had a long way to go before she was financially independent.
- Lakshmi’s parents were ailing and required constant medical and financial support
- They had a home loan which was Manjunath’s liability
- They had saved enough for Adithi’s education and kept aside some money to perform a decent wedding, but their own retirement required more financial resources.
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In addition to term and health insurance, Manjunath and Lakshmi bought personal accident and critical illness insurance. They also made it a point to buy a travel insurance policy for each of their trips. They had insured the contents and structure of their house and their vehicles. To Manjunath and Lakshmi, insurance became an indispensable tool to manage financial risks.
10 Years Until Retirement
In the decade leading up to retirement, Lakshmi and Manjunath finetuned their retirement plans. Many assumptions they made in their forties needed minor adjustments.
Medical Needs
The good news was that Lakshmi’s parents’ health recovered and they were in good spirits. This gave them enough time to save up a sizeable chunk in a medical reserve. They had also accumulated no claim bonuses on their policies and decided to top them up before they became senior citizens.
Where To Invest Retirement Money
As retirement loomed on the horizon, Lakshmi and Manjunath initiated conversations about where to invest their retirement money. Since they were close to their retirement target, they wanted to invest only in fixed income. They became more risk-averse. Their financial planner structured their retirement corpus according to an asset allocation model. Currently, their investments were about 60% in equity and 40% in fixed income. In the next ten years, the plan was to restructure the corpus to 5% cash 45% fixed income 20% gold 30% equity. Gold would act as an inflation hedge and would perform during periods of a financial crisis. Cash could be used to meet expenses and liquidity needs. Fixed income assets would bring stability to the portfolio and generate predictable returns. Equity would help them beat inflation.
Final Year Before Retirement
Lakshmi and Manjunath would turn 60 when they retired. So, a whole world of investment opportunities will open up for them. Like the Senior Citizens Savings Scheme, the Pradhan Mantri Vaya Vandhana Yojana, and special rates on fixed deposits. Not to mention that senior citizens had different tax benefits!
Manjunath and Lakshmi put together a preparing for retirement checklist that would help them transition from working life into retired life!
Preparing for Retirement Checklist
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- Compute retirement benefits – EPF, Gratuity, and Superannuation
- Top-up health insurance plan
- Review and port employer-sponsored insurance policies
- Review and rebalance asset allocation
- Estimate post-retirement expenses
- Identify sources of post-retirement income (pension, SWP, interest, rental income, etc.)
- Estimate post-retirement tax liability
- Plan one-off expenses for the coming year to set up their new house
- Divide their retirement corpus into different “buckets” (i.e. leisure, medical emergencies, Adithi’s goals, etc.)Create a schedule for post-retirement life
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