Importance of Retirement Planning

Have you done your Retirement Planning?

Whenever I ask this question to any of my friends or investors, the answer I get in negative most of them ask me what is need for me to do retirement planning. Article about retirement planning has been written before in my blog but I am going to write it again. I want to tell here importance of retirement planning through a story which I have read few days back in some news letter. It is the conversation among 4 retired person which I am going to share with you.

“Look Who’s here!! Mr. Desai, Good to see you.” said Mr. Suren Mehta, a retired banker. He was sitting with few other friends, Mr. Ajit Khanna and Mr. Rajat Ghosh in a park as their daily routine in retirement days. He suddenly saw Mr. Srikant Desai, a retired professional coming towards them, when he said this.

“Good to see you all too.” Said Mr. Desai.

“Let me introduce you all to my friends, Srikant Desai. He is the happiest retired person I have ever met. He exercises, spend time with his grandchildren, goes on vacation with family and enjoys his retirement to the fullest.” Said Mr. Mehta to Mr. Khanna and Mr. ghosh.

“You are a lucky man” said Mr. Khanna. “I have two daughters. I took loan against my PF and LIC policies and got married them with great fashion. Now, I am left with meager amount to fund my retirement. I wish, I had a son who could fund my retirement.”

“Not really” said Mr. Ghosh. “I have 2 sons. But none of them gives me enough money to enjoy life like Mr. Desai and the annuity I earn from my policies, is hardly enough to survive. I can’t even dream such luxuries. Retired life looks like a curse.”

“I disagree with both of you.” smiled Mr. Desai. “Your retirement planning does not depend on whether or not you have son or daughter. It all depends on how well you have planned for your retirement.”

“We had all planned for our retirements. All of us had few policies and post office certificates for our retirement.” said Mr. Mehta. “Additionally, we had our PF amount with us. All put together we had some Rs. 10-15 lakhs for our retirement.”

“There you are. You had invested only in traditional debt instruments which could not grow your wealth in line with inflation. As a result, you had a smaller amount for your retirement. This amount might have appeared big in your young age but today you realize that it is small. To make things worse, Mr. Khanna dipped into his retirement corpus to get his daughters married in grand fashion.” said Mr. Desai.

“But in our community, it is mandatory to have a grand marriage ceremony. Also  doesn’t father aspire that he celebrates his daughter’s wedding in the best possibly ways?” asked Mr. Khanna.

“Well may be, but the question is, if that was you aspiration, why didn’t you plan for it separately? How can a grand wedding ceremony be a justified expense at the cost of your retirement??” asked Mr. Desai.

“I think you are right Mr. Desai” said Mr. Mehta. “So according to you what is the right thing to be done? Rather what’s the secret you followed that today you are so relaxed?”

“Let me guess. Your son financially supports pretty well. said Mr. Khanna.

“Let me also guess. You had inherited huge wealth from your father.” said Mr. Ghosh.

“Both of you are incorrect.” said Mr. Desai. I inherited nothing but a small house to live from my father. Also me and my son are financially independent. We live together and morally support each other nut neither he seeks financial support from me nor do I seek financial support from him. I think this is the one reason that’s make me feel proud of him and proud of myself.

I had decided to start planning for retirement at an early age of 25. Also, I realized that only debt instruments cannot create wealth for me. Thus, I chose the way of equity which created good wealth for me. I started saving small amounts per month gradually growing to Rs 1000 per month to Rs 2000 per month and so on as my income grew.

Last year, I retired with a wealth of more than Rs 2 Crores which I invested in tax free bonds and now earning around 16-17 lakh per year as tax free interest and I still have some Rs 40-50 lakhs in diversified equity funds so that I continue to beat inflation hereafter.”

“That’s great Man. What a farsightedness!! But you know what?? Equities are not everybody’s cup of tea. It requires a lot of research to find right stocks.” said Mr. Mehta.

“You are right. So if you can’t find so much time to research for equities, you can choose the route of Mutual Funds and if even researching mutual funds is also difficult for you, go for a fee based financial advisor.” said Mr. Desai.

“But I always thought equities are risky.” said Mr. Khanna.

“Equities are volatile in the short term but in the long term, they are the true wealth creators. Also, let us analyze the risk of not investing in equities. Look at your all equity-less portfolios. Is not that a bigger risk that your retirement wealth is far below required as you could not beat inflation?” said Mr. Desai.

“But are not sons supposed to fund our retirement? We do much for them. I still remember, I gave them everything they asked for, even if was stretching my budget. At times, I ignored my parent’s requirement also to fulfill my son’s wishes. But today, all they care about, is their children. We don’t exist for them.” said Mr. Ghosh in agitated voice.

“Here come the double standards. You say that when you ignored your parents to fulfill your son’s wishes, you were right but if your sons ignore you to fulfill their children’s wishes, they are wrong. Why so? Also you said, that you stretched your budget to fulfill their demands. Now ask this question to yourself, whether it was a need or desire that children your demanded? If it was a need then its ok but if it was a desire and you gave up your retirement planning to fulfill it, then the only person to be blamed is you not them.” said Mr. Desai.

“That ways I am lucky, my son gives me some money every month for my expenses and also he fulfills their children demands. So, I would say, he is an ideal son and ideal father.” Said Mr. Mehta

“I would agree only if you tell me, that after all this, he is able to save and invest for his retirement.” said Mr. Desai.

“Well I am afraid, not.” said Mr. Mehta. “These days expenses are so high that after doing all this, he is hardly left with any money.”

“In that case, I would suggest you to become his mentor and tell him to start saving some money. In fact, don’t take me wrong, but your son is facing this problem because your lack of planning. If you had planned your retirement well, the money he is giving you could have been invested towards his retirement.” said Mr. Desai.

“So what should I do now?” asked Mr. Mehta

“Please tell your son to prepare a budget for his monthly expenses and try to curtail those which are unnecessary. This money needs to be necessarily invested towards his retirement so that he doesn’t have to financially depend on his son. Today, my son is not handling household expenses very well but is also saving and investing 20-25% of his income towards his retirements. This way he is not only securing his own retirement but is also taking off the responsibility from his son. In a way, he is helping his son by planning his own retirement.” said Mr. Desai.

“Is is not our culture that our best retirement planning is to invest in our children?” asks Mr. Ghosh.

“That is only half the truth.” smiled Mr. Desai. “The fact is, we Indians have a culture to save for our future. In your young age, future is 2 things i.e. your children’s working life and your retirement. Now, when you give good education to your children, you are done their future but for your retirement, you still need to save and invest. In fact, Western countries had a culture of not saving for retirement. There, the government had enough resources to take care of the retired. But you will be surprised to know, that the trend is changing there too now. They have started saving for their retirement.” said Mr. Desai.  

“You have opened our eyes today.” said Mr. Ghosh, Mr. Mehta and Mr. Khanna to Mr. Desai.

“Thanks for the compliments. A few last words which I would like to share with you:

There has been a trend of old age parents being deserted by their children as they cannot financially support them but if we want to curb this problem, the first step is start saving and investing for your retirement. So this is not only a social issue but a case of lack of planning.

Tomorrow, when your children grow up, they will have enough liabilities including household expenses, home loans, children’s education, self retirement etc. Make sure that YOUR lack of planning does not mess up their finances. In fact, if you say that you care for your children, show this care by doing retirement planning for yourself.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com