Retirement Planner needs to address far-reaching aspects in retirement

In India due to lack of Social Security System, people need to take special care for retirement kitty to meet expenses after retirement. Immediately after retirement, a retiree (salaried/professional) will stop getting the regular income check which was certain during the working phase. This is the chapter where a retiree may get huge shock. The absence of a regular monthly earned income makes him anxious about the existing returns from savings and investments. The reason being traditional investments fail to offset inflation and income taxes. This transitional phase is to be addressed with great care. Retirement planning of a retiree demands understanding the personal matters of the person along with macroeconomic factors. The retiree’s main concern is out living the retirement corpus if the retirement corpus calculations are not correct (technical part). Personal matters (emotions) influence financial decisions. As Arijit Sen is a SEBI Registered Investment Adviser in Kolkata, we address both personal matters and technical parts while doing retirement planning.

What are the unique areas to be focused by a Retirement Planner?

Retirement planning is a multifaceted area; it’s unique for each one of us. As qualified Retirement Planner in Kolkata , we address both the technical side and your personal side of money as per available scope and requirements. It resembles both sides of a coin. Traditional Financial Planner may address only technical part, i.e. taxes, investments, estate planning, cash flow and risk management only.

Retirement is a transitional phase. Few people give little focus on how they will spend their time in retirement, although they’ll have abundant time. Imagine, from the next day, you would not be going for work. You’ll spend more time with your family. You’ll have time to pursue your hobbies. You may have certain expectations which may disappear in reality while you’ll retire. Expectations are assumptions. A Financial Planner must also address the personal side of money, i.e. your and others’ expectations (two layers of expectations), relationship, emotions, hopes & dreams, self-esteem & sense of well-being etc. As Uttam Kumar Sen is a student of Financial Transitionist Institute®. He applies the tools to address both technical & personal sides of money. Hence, while planning for the finances of our clients, we apply the same.

Retirement Planner highlights various aspects while writing Retirement Plan for you.

There are few unique factors which a Financial Planner should note (technical part).

A strategy helps you to establish a clear sense of direction with purpose towards a defined outcome. A strategy guides your decision making in terms of purpose, method and outcome. A strategic approach to retirement planning includes:

• Carefully check the availability of retirement benefits you have with values from various sources (own investments & retirement benefits provided by employer)
• Categorically mention the number of potential dependents during post retirement & cost
• Extra provision for health care & emergency issues
• Inflation
• Taxation issues
• Changes in lifestyle
• Retirement age & life expectancy
• Repayment of outstanding loan (if any)
• Your post retirement hobbies or other interesting activities (you have to spend a quality of time every day during post retirement period) etc.

Needs to be fulfilled through effective financial planning:

• Provision for inflation adjusted regular income by maintaining the required standard of living both for you & your potential dependents, so that you can avoid retirement kitty erosion
• Building up contingency fund for contingencies like accident, chronic diseases etc
• Provision for adequate health insurance
• Property insurance
• Provision for purchase of own house if you don’t have already
• Estate planning etc.

Key Issues on which your Retirement Planner is supposed to work with you:

• Normal retirement
• Pre-pone of retirement or VRS
• Post-pone of retirement or re-employment
• Taxation of retirement benefits

Retirement Planner works with you to address your personal factors and guides you to minimize assumptions and implement the Retirement Plan

Retirement & Cash Flow Management

Millennial think retirement planning is only required for the person who’s about to retire. It’s not true. It should be noted that, longer the time for investment the greater the chance for smart accumulation. If one’s career is secured and growing then he just needs to fix his goals and implement the plan to achieve those goals. Both pre-retirees and retirees should take care of eight key elements in their investment strategy, i.e. security, liquidity, expected rate of return on investment, inflation, taxation, social security, personal factors (including risk profile) and macroeconomic aspects.

Anyway, we can’t ignore tax and inflation. Suppose you’re earning 8% from Bank FDs, if your tax bracket in 10% and inflation is 6.5%, what would be your real usable income?

Post tax return is 7.2%

Inflation adjusted returns is 0.66%

Therefore, if you follow the traditional approach of depending on interest income only you can use 0.66%. This is not even 1%.

Can you survive on this? Also, is it generally possible for someone to create that level of corpus easily so as to survive on interest income only?

As Financial Advisor in Kolkata, we design suitable asset allocation strategy and investment strategy after considering client’s personal aspects and macroeconomic factors. This structured process enables the client to live off the corpus.

Why is it wise to start early?

Two persons X & Y starts investing for their retirement, (retirement age is 60 Years):
Mr. X starts a monthly SIP of Rs. 20,000 at the age of 27 years.
Mr. Y starts a monthly SIP of Rs. 40,000 at the age of 40 years.
The expected/assumed rate of return on investment is 10%.
Even when Mr. Y invests more, but he started 13 years after Mr. X. How much did they accumulate?
Mr. X could accumulate after 33 years Rs. 6.23 Crores.
Mr.Y could accumulate after 20 years Rs. 3.06 Crores.
Mr. X could accumulate Rs. 3.17 Crores more than Mr. Y, although Mr. Y invests double the amount invested by Mr. X. This illustration helps us to understand time value of money, i.e. if an individual invests regularly for long period he’ll be benefited more as compared to an individual who starts late.

Annual income of Mr. X at 27 is Rs. 10 Lakhs. At the time of retirement (at 60), his expected annual income would be around Rs.90 Lakhs if income growth is considered as 6.5% to 7% per year. Presently, his annual expenditure is Rs. 6 Lakhs. If inflation rate is 6.5%, his annual expense at the time of retirement would also increase to almost Rs. 48 Lakhs. Provision for retirement is to be made rationally. Ignoring the practicalities will certainly not do well.

To conclude, comparatively the longevity is increased as compared to before. We know that the latest medical facilities are available to common man now. Naturally longevity is comparatively higher than our ancestors. We are afraid of dying too late and living too long. Accordingly, we need a steady flow of income at that time when we are retired or when we become mere consumers.

The question is how we’ll survive long if we fail to generate inflation adjusted retirement kitty?

To answer the questions, being Certified Financial Planner in Kolkata, we say Retirement Plan is the road map we can design for you. Therefore, you have to think of the following concerns:

• Determining of your unique retirement objectives (Identify realistic retirement goals and approaches)
• Asking your Financial Planner to create a Plan to achieve your retirement goals
• Implementing the Plan in to action
• Understanding your financial independence which is an indispensible part to make your retirement enjoyable through your lifetime
• Minimizing your tax liability during post retirement
• Estate planning is also a key concern. You make a hassle free provision so that to ensure that your hard-earned wealth reaches your desired people after your demise
• Not investing emotionally during retirement; it’s your hard earned money. You need to maintain proper asset allocation. Further, review your investment assets to assure they are arranged appropriately to meet your retirement objectives and to convert capital to income in the most tax efficient manner
• Starting as early as possible
• Projecting your estimated goals and expenses rationally
• Saving and invest regularly without compromising
• Trying to beat inflation
• Reviewing you Retirement Plan at a predefined interval; etc.

Planning for comfortable retirement is an ongoing process and not a onetime event. Many external and internal factors can impact the viability of your Retirement Plan in the future. We sit with our clients at regular intervals to check the financial situations by comparing actual scenarios with initial assumptions and use this analysis to determine if adjustments need to be made.