Retirement Benefits – How To Enjoy Them Without Worry
Most people are guided by the proverb - Work is Worship throughout their professional life. It doesn’t matter how much you love your work, you will have to stop someday and give your mind and body a much-needed rest. In India, people are expected to stop working and relax after the age of 60. A majority of public and private sector companies have set the mandatory retirement age around 60. Retirement leads to a sudden change in the daily routine as well as the lifestyle of the retiree. After following a routine for several decades, you are suddenly without any fixed schedule after retirement. The sudden and profound changes brought by retirement can be difficult for some people, but retirement has its own advantages.
Some Retirement Benefits
• More time for loved ones: With improving internet penetration, several processes have been digitised and the digitisation of traditional jobs has brought work into the home. Work has invaded family time which is the reason why most people fail to commit adequate time to the family while working. But after retirement, you can dedicate as much time as you want to your family. You can play with your grandchildren or spend quality time with your spouse and your children. Retirement helps you make up for the lost family time of the younger days.
• Time to follow hobbies: Everyone has a hobby or passion which he/she wants to follow. However, professional and domestic responsibilities do not allow people to undertake tasks they like. It is never too late to try new hobbies and retirement is the best time to take up hobbies. One of the retirement benefits is that you have ample time to undertake long-desired hobbies. Hobbies can be of many types. It could be a simple hobby like playing a musical instrument or an expensive hobby like playing golf. Having adequate resources becomes necessary to follow expensive hobbies. Focus on retirement planning if you have hobbies that require substantial resources.
• Freedom to achieve life goals: Our entire life is spent dreaming about certain life goals. Some dream of roaming around the world while others dream of going back to the village and start farming. Most of the life goals are put on the backburner due to the demands of professional life. Retirement gives you a chance to participate in long-cherished activities. After retirement, you are not bound with time or other limitations and can make the move to achieve your life goals. If your life goal was to live a serene life in the countryside, it would not have been possible to relocate while having a regular job. Retirement gives you the freedom to relocate and participate in soul-satisfying activities. Sometimes, resources become the only limiting factor after retirement. However, retirement planning with an eye on the future can help you accumulate sufficient resources to achieve life goals.
• Option to take up new projects: Many a time there is a difference between what people do and what they would actually love to do. You wanted to be a professional photographer or data analyst but spent your entire life being a chartered accountant. Retirement can be a rebirth for your career. You can start afresh and take up work that you only dreamed of. Working after retirement also provides an additional source of income to supplement your pension income and the retirement corpus. It is not mandatory to change your profession entirely, you can also take up consultancy work related to your prior profession or also work as advisors in the field of your choice. Not everyone wants to switch careers, many people want to continue working in the same profession, but with a reduced workload. You can choose to work in the same sector and easily control the workflow after retirement.
Retirement can be equated to a new life. There are various benefits of retirement, but some drawbacks too. Some retirees experience difficulties after retirement as work gives meaning to their lives. But a bigger issue is exhausting your retirement saving. A number of factors have changed the dynamics of retirement planning.
• Increased life expectancy: Life expectancy has increased substantially in the past few decades. With the rise in life expectancy, the post-retirement phase has increased. People had a post-retirement life of 10-15 years earlier, which has increased to 20-25 years now. A longer retired life results in a strain on the resources. You will need a larger corpus to lead a comfortable life for 20-25 years than would have been needed for 10-15 years. Most people fail to take into account the chances of living a longer life when participating in retirement planning.
• Inflation: One of the biggest mistakes committed by people while retirement planning is to ignore the impact of inflation on the cost of living post-retirement. The value of Rs. 1 lakh will erode substantially till the time you retire. The value of the retirement corpus will deteriorate during the retirement years itself. The effect of inflation should be a central part of any retirement planning. You have to take a futuristic view while investing for retirement as the real return will decrease if inflation inches up. Besides returns, the cost of living increases over time due to inflation. As per estimates, if you have monthly expenses of Rs. 1 lakh at the age of 30, you will need Rs. 6.5 lakh every month to maintain a similar lifestyle at the age of 60.
Due to factors like longer life and inflation, you will have to accumulate a larger retirement corpus. These factors have changed the structure of retirement planning in India. Smart retirement planning has become essential for enjoying the benefits of retirement. The primary aim of retirement planning should be to increase the retirement corpus. The two most basic steps to accumulate a larger amount until retirement is to start early and invest in appropriate investment products.
Why is starting early important?
People in India have traditionally depended on their children for retirement. Children are supposed to take care of their elderly parents after retirement but changing family structures and ways of thinking have changed how people make decisions today. The number of nuclear families is increasing as against joint families earlier. Many children are choosing to live in a different city for work than their parents. In a nutshell, it has become extremely important to be financially independent and have access to adequate funds after retirement. Since the retirement products available in the market have not changed substantially, the safest option is to start saving and investing early.
As you age, the responsibilities will increase which will weigh in on the available funds. Responsibilities are lower in the 20s and 30s but rise exponentially in mid-30s and 40s. You will have to allocate a bulk of resources for children’s education or for parents’ healthcare. It is easier to contribute to pension funds at a younger age. Another major benefit of starting early is the longer time available for the investment to multiply. Compounding boosts returns when investments are left for a longer time as the interest earned on the initial investment starts to generate returns too.
How to invest for retirement?
Starting early is half the work, the other half is to choose the right investment options. People working in the organised sector already contribute to instruments like the provident fund. But provident fund investments may not be enough to support you post-retirement. You will also have to look at other investment options. Retirement plans or pension plans can be one of the options. Today market linked retirement or pension plans are designed in such a way to provide you with a regular income even after retirement. With ULIPs, you can save for retirement as well as enjoy the protection of a life insurance cover. Investing in a pension plan eliminates the need to invest in a separate life insurance plan. A part of the contributions is invested in market-linked instruments to accumulate funds for your retirement, while the remaining part is used to provide insurance cover. The investment component is invested in equity or debt funds as per the return and risk profile of the investor. Pension plans generally do not invest in risky equity instruments and the investment is mostly maintained in relatively safer debt instruments. A portion of the accumulated fund will be paid to you at maturity which can be used by you to take care of immediate needs. The bulk of the corpus, however, is used to provide a regular annuity, which acts as a regular source of income after retirement. Market linked Pension plans essentially provide you with the benefit of market-linked returns, life insurance, a lump-sum amount at retirement and a regular income after retirement.
The benefits of market-linked returns and compounding offered by such pension plans can be availed only by starting early in life provided you have planned your investment to meet your long term life goals. Delaying retirement planning can have a detrimental impact on the final outcome. You can overcome the negative impacts of inflation and accumulate funds for a longer post-retirement life with the right pension plan. A regular income in the post-retirement phase will help you lead a fulfilling and content life.