What to Do When You Are Not Financially Prepared for Retirement?

When it comes to personal finances, your ability to take care of yourself in any stage of your life should be more than possible. This means that you should be able to fund yourself during your period of work life, and after that, during your retirement. In turn, retirement planning is one of the most important things to consider during your active salaried years. However, despite good intentions, you can find yourself totally unprepared for what’s in store in the future. For the majority of Indians, literacy of the financial variety has been nothing short of elusive. Some individuals only wake up to the shock of a lack of finances when they are on the brink of retirement, or worse still, in the throes of it.

The retirement plan for many Indians remains the dependency on their children for financial support. In August 2017, the Reserve Bank of India revealed that the population of Indians aged 65 is expected to grow quickly (75%) among all age groups by 2031, and ironically, only 23% moving towards this age group were planning to save for retirement in 20161 It can be nothing short of painful if you find yourself financially weak during retirement. Case studies will explain this fact.

Case Study # 1

Manav Roy retired a few years ago. He had worked at a PSU all his life, and being an engineer, was quite successful. He remained complacent about his retirement as he believed that being a government employee, he would be entitled to sufficient benefits to hold him in good stead during retirement. Thus, he thought the pension benefits he was due to get being a government employee, would more than take care of his financials after he stopped working. However, when he actually did retire, Roy was in for a rude shock. Roy realised that his financial condition could have been better if only he had solidly invested while he was younger. Nonetheless, as always, “later is better than never” and Roy considered serious investments.

Roy got a lump sum when he retired, and he put a lot of it into investments that would give him a steady return, like bonds. But he also talked to a good financial advisor about planning for retirement, and the advisor told him to buy a property that he could possibly rent out and make money from. Roy was more fortunate than most as he had a government job and a financial buffer to match. Employees working in private firms may not have been as lucky.

Case Study # 2

Sunil Patel found himself in a position, somewhat similar to Roy’s, when he finally retired some years ago. The most worrisome issue was that there were no funds collected for retirement. Without a concrete retirement plan, there was a virtual risk of Patel’s financial state becoming worse. Therefore, like Roy, Patel had to build his safety net after retirement. The initial thing on Patel’s mind was to cut out any debts. Therefore, all loans were settled first.

A significant corpus could be accumulated for Patel through financial planning, which would help him to be moderately stress-free, but the regret of not having invested earlier would plague him for life.

Conclusion

Retirement planning takes years, and the younger you start, the better off you will be when you retire. The trouble is, when you are young, you don’t realise how stressful retirement may be if you don’t have the financial capacity to meet your requirements. Investments must be made in youth, so they have time to grow and turn into a corpus that helps beat inflation, while maintaining your lifestyle and any add-ons like emergencies and healthcare needs. You may also wish to have a corpus established for your enjoyment and recreation, such as holidays, etc. through early retirement planning. One can take aid of a retirement calculator for further assistance.

Therefore, while you are young, you may consider planning, investing in a diversified portfolio. If you have just depended on a pension plan, you may consider rectifying your finances as per your current situation. The first thing to do is to opt for some fixed income instruments like senior citizen schemes. These may also give you tax benefits. If you haven’t made retirement plans, a DIY (Do-It-Yourself) method is not a good idea and talking to a financial advisor may help.

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