Importance of future spending goals in retirement planning

With a rapidly rising population of the elderly in the country, retirement planning has become a must. Even as the population of elderly has become more than 80 million in the country, a large section of them are not covered by any formal, state-sponsored retirement scheme. According to government data, only 12% of the working population has access to formal retirement cover, while the vast majority is without the social security umbrella.

Alongside the demographic changes resulting in an increase in population of the elderly, the advances in medical science has resulted in increased life expectancy. This means that the elderly population requires funds for their financial requirements for a longer period. Also, the changes in society have resulted in an increasing focus towards nuclear families, where the elderly population no longer have the comfort of support from a large joint family. These crucial factors make it indispensable for any individual to have a retirement plan. And, to have a viable retirement plan, you are required to understand your future spending goals.

Retirement planning in the Indian context: Given the unique socio cultural milieu of the country, you can only retire after having fulfilled your responsibilities towards your family. You have to meet crucial life-stage goals, like providing funds for your child’s education and their marriage. So retirement planning in Indian context requires taking into account all your future spending goals at the key stages of life.

Steps required in retirement planning: Typically, to draw a retirement plan. You need to consider the fund requirement for your post-retirement years. With the rise in per capita income, you must always consider a sufficiently large retirement corpus for your future needs.

How to calculate the income required for retirement?

• The foremost step to calculate the income required for your post-retirement years is to consider your present income requirements. While cost incurred in some financial requirements would decrease after retirement, there would be corresponding increase in other aspects. For example, you will have less income tax liability in the post-retirement years, while costs involved for medical expenses could increase. Similarly, you might be spending more on vacation and entertainment expenses, while saving the commutation costs. By adjusting and extrapolating your future and present expenses, you can arrive at the total expenses required after retirement.
• You must always remember to account for inflation while drawing a retirement plan and considering future spending goals. Inflation is simply the rise in cost of living expenses, like increase in the prices of food items, consumer goods, medical expenses etc. As inflation can negatively impact your retirement corpus, you should ensure to have a sufficiently large retirement corpus. Once you adjust the cost of inflation, you can arrive at the correct figures for the required income after retirement.

Investment avenues for building a retirement corpus: Once you estimate the funds required, you can select to invest in different investment vehicles, in sync with your future spending goals. Industry experts suggest retirement planning from an early age. You can choose to invest in:

National Pension Scheme: This is a government-sponsored retirement scheme, where you can start contributing a minimum of Rs 500 in a year. After retirement, you can withdraw up to 60% of the maturity amount, while the rest is used to provide you with annuity. In addition to the compulsory Tier I account, you can also open a Tier II account within the NPS. You can withdraw your corpus from the latter at any given point of time.

Public Provident Fund: This is another retirement plan offered by the government. It has a lock-in period of 15 years. You can invest a minimum of Rs 500 each month in the PPF.

Mutual Funds pension plans: These provide high returns over a long-term period. Here you can opt for a systematic withdrawal plan. You are also not required to purchase annuity.

Conclusion: Thus, before drawing a retirement plan, always remember to consider your future spending goals. Among the different options for building retirement corpus, you can also zero in on Unit Linked Insurance Plans (ULIPs), which provide the dual benefits of market-linked returns along with the protection of a live cover. You can zero in on the Invest 4G plan from Canara HSBC Life Insurance, which maximises your savings through loyalty Additions, wealth boosters and return of mortality charges.