By Suresh Sadagopan
Retirement is something many people dread.
For many, it connotes irrelevance, lack of status, oblivion, disorientation, and lack of purpose, among other things. That is because, during their working years, their work and position was their identity itself! That gives them purpose, a sense of direction, respect along with good remuneration, all of which translates into a feeling of self-worth and contributing to the organization and society.
Retiring early - That has changed a bit today, with many expressing their desire to retire early. They want to quickly create enough wealth to take care of all their needs and goals. For these people, their working life lacks purpose, which they wish to traverse as fast as possible. After early retirement, they want to live a life imbued with meaning and purpose, as well as work at a pace that suits them. But still, that would mean 20-25 years of grinding work, maxing out the savings during their earning years so that they may retire early.
That is the premise of Financial Independence, Retire Early (FIRE). This is a utopia lot of people are pursuing today. But that has several problems.
Firstly, why should one spend a considerable number of years doing meaningless, non-engaging work? Can one not get into meaningful work from the beginning that also pays?
Secondly, the extreme savings and frugality that is espoused in FIRE may not find ready takers in the family.
Thirdly, the meaningful work or work without pressure which one wants to do after retiring from active work may not be as fulfilling or enjoyable as one thought.
Retirement preparedness – Irrespective of when we want to retire, we need to be prepared for this phase of life. Retirement eventually comes!
But this is one goal that most people ignore. For the young, retirement is not even on the horizon, and hence, their income goes into fulfilling various here-and-now goals like vacations, cars, homes, and education. Most people just contribute the mandatory amounts in EPF/ NPS and move on.
It is in the 40s when something called retirement comes into their ken! People start planning in fits and starts from there on. For some, it takes the form of a couple of pension plans to stave off the guilt! Some others go further and add a bit more money into their PPF/ VPF/NPS. Life goes on till one reaches the 50s.
Augmenting the Retirement corpus – Many people start investing good amounts for retirement in the 50s, as retirement is round the corner. More products are bought; more contributions into the typical retirement buckets like EPF/ PPF/ NPS happen. People do some back of the envelope calculations to ascertain what they need in retirement. But a proper plan is still not there.
Pension survey – The recent Pension survey by Grant Thornton clearly brings these out. People do not save enough for retirement – a majority of people (74%) save just between 1-15% of their income, even though they are interested in getting a good annuity/ income after they retire.
This survey has also found that younger people want to retire much earlier than the 55-65 age bracket which others think they will retire at. There is also a concern about the security of their retirement funds.
All these hint at the lack of a planned approach towards retirement planning.
The changing world we live in - The world is becoming more turbulent and uncertain place than ever before. Job uncertainty is increasing. AI is the tsunami that may cause large-scale job losses and can dramatically reduce recruitment in entry to middle-level jobs ( for now). AI will also create jobs - but those will be skilled jobs in niche areas.
Gig work is getting more prevalent. But Gig work does not pay like a regular corporate job, which comes with good remuneration and benefits. Many also turn to entrepreneurship. But, this is a rough road where few will reach the destination.
Whichever way we look at it, the road ahead is a rough one, needing careful manoeuvring. More than ever, planning for the future has become inescapable.
Addressing the Retirement conundrum – There is no point blaming the government, the high taxes one pays, high inflation, lack of social security, etc. These are the non-controllables. We need to be smart about our future and start taking steps to shore up our retirement funds.
The report highlights low savings for retirement. That is the elephant in the room!
That and starting early and allowing the investment to compound is the only way one can reach the desired corpus for getting a good monthly annuity.
If we start right at the beginning we can invest in equity-oriented assets or other growth assets to grow the corpus aggressively and enjoy the miracle of compounding that the long time-frame will ensure. It needs careful planning and maybe professional help.
A good growth portfolio needs to be put together for this purpose and reviewed from time to time. This should be alongside the traditional retirement products like EPF & PPF. That is the controllable part.
Merely wishing for a good annuity in retirement and not committing enough money for retirement will just not work.
Making retirement look like the happy pictures we see in pension product brochures is entirely in our hands! Let us make retirement invigorating, well-funded second innings!
The author is the MD & Principal Officer at Ladder7 Wealth Planners and the author of the book “If God Was Your Financial Planner”.
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
