Planning for Retirement – Myths vs. Facts

Young folks who are just starting their careers have no big financial responsibilities. They face instead the temptation to spend on partying, shopping, gifts, gadgets and other indulgences. One has to limit these expenses and include savings and investments as part of the monthly budget.

Most people think about savings and investments during their late 30s. At this stage they can hardly save enough. Their credit cards and loans are dragging their savings, and this becomes a cyclical catch-22 situation that never ends because responsibilities add up with marriage, children, caring for parents, etc. So the message is to start early and to be a regular and disciplined saver and investor.

I’m not that old:

This point is partially addressed above. Here one needs to understand that we are talking about retirement planning, which happens decades before you actually retire. It’s not about hanging your boots next year, but saving for your own golden days (a few decades away) when you cannot work full time like you do now.

I’ll wait for a lump sum:

Some people wait to save at least a lakh rupees (or a lump sum), and then decide what to do. This is a flawed assumption. We are not taking about big or small amounts, but about regular and disciplined savings. Although the target retirement corpus (amount planned) may be huge, you can reach this figure through small savings over the years. Waiting for a lump sum of money to accumulate before you begin is just an excuse to postpone your planning or procrastinate. If you have not thought about retirement so far, start now before it gets too late.

I’ll receive support from my family:

Most people think that their children will support them in their old age. This is true in some Indian families, but times are changing. Although it is important to have family ties and trust, one needs to have financial independence so that you are not necessarily burdening your future generation, who may have new responsibilities of their own to attend to. Some people think that they can get external support if they join old age homes, elderly care centers or a charitable organization. We never know if these options will work so it’s better to be prepared for eventualities and have contingency funds in hand.

My financial requirements will decrease:

This is simply wishful thinking. Some of your responsibilities will be reduced because you don’t have to work or worry about your children. But what about your own living expenses and healthcare? Try speaking to retired elderly people in your family circle to know the real truth. They will tell you that you need lot of money for medical costs – preventive medicine plus curative medicine. In addition, your living expenses will increase in tandem with inflation.

Don’t be surprised if a kilo of rice, which currently costs Rs.40 per kg (for example), costs Rs.100 per kg when you retire. An auto rickshaw from your home to the nearest railway station, which currently costs Rs.25, may cost Rs.150 after 25 years. A litre of petrol costing Rs.70 now may cost Rs.250 then. Even though some of your discretionary expenses can be controlled, there are many other basic expenses which cannot be avoided or controlled, and are dependent on the economy and currency value.

I will not live that long or I won’t retire:

This is one of the most irrational myths that some people use to justify that retirement is not important or necessary for them. The typical life span of an average individual is increasing, based on solid statistics. People tend to live longer but they suffer from medical ailments and issues. This is a double whammy because you live longer in poor health, thus increasing your normal living expenses as well as medical costs. So the first assumption is proven wrong. The second assumption is also wrong, because today most people retire early, when compared to olden days when a person served till the mandatory retirement age and received all retirement benefits. For people working in private sector, there is not much social security except for the Employees Provident Fund. Retirement from a regular job is certain whether it happens by chance or by choice.

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