THE world is not what it used to be. Gone are the days when you could get a plate of idlis for one rupee or the days that you could walk on the roads without fear of being run over or mugged. Or when the only channel you could watch was Doordarshan. And yes gone are the days when you could expect your children to take care of you when you grow old. Nuclear families are in and so are longer life spans. And with inflation and escalating medical costs - you're looking at serious money for a comfortable retirement.
Some random fixed deposits or stock options do not a corpus make. So are you really doing justice to your post-retirement corpus?
The list of what TO DO is too long, so we spoke to experts, asking them what NOT TO DO when you are planning for retirement, and all the following is from stuff that they had to say.
DO NOT put all your money in fixed instruments:
Kartik Jhaveri, director, Trancend Consuting (India) Pvt Ltd. says, "At first sight, it seems the most logical thing to do. After all, the safety of your hard-earned money is at stake, and the government is giving you a comfortable rate of interest. But consider this: the money you keep does not match inflation."
For example, historically average inflation has been in the range of 5-6%. Even if bank deposit interest rates are about 6.5%, you actually end up losing money. Tax plays a big role too here. The interest herein is not going to be tax-free, so your effective return will be less than 6.5%.
As for corporate bonds, investment advisor Gautam Narain has a word of caution. "HDFC bonds used to give in returns of 16% at a time, now it is down to 6 to7%. Unless the company has a AAA rating, investment in company bonds will be asking for trouble".
DO NOT lock in all too much money for too long:
The problem with fixed income instruments is the lock-in period, Narain says. While planning for that post-retirement nest egg, remember that you need both flexibility and liquidity for your savings. Accordingly, it is not at all a good idea to put all the money in a fixed instrument like corporate or company bonds or long term bank deposits, says Jhaveri. The biggest problem with this would be that the money can't be witdrawn in the middle of the term. This is added to a reinvestment risk. Mutual funds are a good idea, but that should be preceded by some careful number crunching.
Mutual fund investments are subject to market risks. Also, there is little guarantee that a fund which has a consistent track record of performing, may not underperform in the coming years. The expense ratio for the fund also needs to be calculated.
DO NOT invest and forget, you need to rebalance:
There are two things you need to figure out while planning for retirement, feels Jhaveri. After retirement, you need to withdraw a certain amount of money, say, every month, for your expenses. This withdrawal amount will deplete your corpus. And secondly, you would need money for emergency or unplanned expenses. This can only be achieved by rebalancing your portfolio from time to time. So don't make investments and bury the papers. Monitor them from time to time.
The trick, Jhaveri says, is to devise a professionally counselled and well-managed asset allocation portfolio, in which the return from investment of the portion of corpus will compensate for the withdrawal amount. Typically, for a 25 to 45-year age band, the accent should be on equity investment.
The amount to be invested in equity should necessarily be determined by the risk appetite of the individual.
Typically, for a post-45 professional, the most immediate need is payoff of debt. This is the time to move more of the investments to debt. Besides, in the 45 to 60-year age band, income level is typically high. By the time you are 55, you should be clear of debt.
Photograph: Brian Bahr/Getty Images
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