Investing for retirement, not saving, is prudence

NEW DELHI: Have you set your financial goals for life after retirement yet? Retirement planning is not just about depositing some money in a retirement account.

It requires periodically working through mathematical assumptions and projections required to ensure you meet your goals. With virtually no social security net for the salaried class, it is important to plan rigorously for retirement, so that rising cost of living should not destroy your retirement nest.

Get your calculation right

Retirement calculation is more complex than other saving plans. In addition to inflation and interests, one needs to take into account taxes, capital gains and market risks while planning for life after work. It also involves projections of accumulating assets for 40 years and spending during retirement nearly as long. The math is more complex than you initially thought.

Also, the financial projections need to be updated annually, have to be updated along with your changing standard of living, increase in salary and also take into consideration your financial liabilities during the time of retirement.

Set goals in sync with lifestyle

How do you see your life after retirement? Do you plan to relax at home, explore the world or pursue a hobby that your otherwise professional compulsions did not allow you to chase? It is important to make that assessment, so that you do not have to compromise on your dreams and have enough money in your account to support your lifestyle goals even after you retire from work life.

Don’t save, invest for future

Most people save for their retirement, without taking into account what will be the value of those savings, say 20 or 30 years from now. Financial experts claim that this is the biggest mistake one can commit.
While it is good to save, it is also important to review if this saving is sufficient to cover all your requirements after 30-40 years. The key is to invest rather than saving. Invest into instruments or assets whose valuations go up according to the inflationary trends of that period.

Common mistakes in retirement planning
■ Don’t withdraw your Employees Provident Fund.
It should be strictly for post-retirement years
■ Don’t underestimate your tax liability. The pension you receive is taxable. With increasing tax nets, it is unlikely that your income after retirement will not be taxable
■ Don’t ignore inflation.
For instance, assuming 7% inflation, Rs 1,00,000 today will be worth only Rs 13,000 after 30 years