Tuesday, 3 April 2012

Retirement Plan - Smart and Simple Approach

Source:renjith krishnan
A week ago, one of my cousins “Rahul” and his daddy visited our home. Rahul is studying in his Final year of Engineering. Thanks to college reputation, Rahul already has two offers in hand. Offer of 6 Lakh per annum for a fresher?  Hearing this, I said WAWWWW…..  My uncle, Rahul’s daddy gave a sarcastic comment,  Yea….. Salary somewhat looks Good, however these companies don’t pay pension like we use to Get….
My Uncle started off his lecture – You know, current generation youth, they may earn hefty salary but fail to achieve financial independency. The analysts on TV say, XYZ% of Americans, ABC% of Indians Fail to achieve financial independency. He continued, do you know the reason for this?  My talkative uncle continued and said,  every company should pay pension. To put a break on his talks,  I just said, Uncle how about some hot coffee? I had no better way of diverting him from his tale…

The saga continued post coffee session too and even Rahul joined the conversation.  Rahul asked me “Is Retirement Plan Really Complex”?  I said it depends on how you approach it. Rahul gave a confused look at me. I continued and Said, it depends on your plan. You can make it as Complex as Calculus or it can be as simple as algebra. He was almost lost..

"How Much Money Do You Need for your Retirement"?

I was waiting for Rahul’s response But uncle was quick to respond, By the Time Rahul Retires, he would need bare minimum of 1 Crore Rupees. He further added building this amount is not a Joke. Many attempt but few succeed. .
I said yes it’s not a Joke to build this huge amount; however it not unconquerable tasks either.   He said “people can talk anything in air”, support your facts/options with data.
I started off…. Uncle as I mentioned Retirement Plan can be as complex as Calculus or it can be as simple as right answer to Simple question “How Much Money Do You Need for your Retirement”?
Complex Solution: The day you end up investing into products you don’t understand or invest into complex products, there are good chances that you end up not achieving your goals. Complex solutions like Retirement-Endowment plan; Ulip Retirement Plan, etc are very complex to understand. Its better avoid taking undue risks.
Click here to read investment products to avoid.
Simple Plan:
Start off early and aggressively: There is saying “Early Bird Gets Fish”. The more you save initially the faster you reach your Goal. I casually threw a statement at  Uncle and Rahul “Give me your first year salary, I will ensure that 90% of your retirement planning jitters are eliminated”
Uncle opened his mouth and said WHAT?  Just One Year salary? Are You Kidding, I can ask Rahul to do that, I will consider Rahul is studying for another Year.

Here is how the chart looks.

% of 1st year Salary
Bank FD @10%
MF @ 15%
35 Years
95 Lakhs
3.9 Crore
35 Years
1.9 Crores
8 Crores

Even if Rahul invests just 3 Lakh that is 50%  of his first Year salary in Fixed Deposit at 10%, He would get corpus almost close to One Crore. Further as per the promise, if he invests entire salary of 6 Lakh in MF, he would get handsome 8 Crore Rupees when he retires.
Looking at this chart, Uncle's immediate reaction was, Is the calculation correct? I said, I think so...  I was about to the leave the room, Uncle said, Can you give us more inputs. By now uncle was on already on back foot. He was convinced that a smart plan is all that is needed to build retirement corpus.

My Inputs : Here they Go.
·    The biggest secret for Successful retirement planning is to start off as early as possible.
·    Be aggressive during initial period. Invest as much as you can. Stay invested for long time.
·    Never touch your EPF money. This is one of the best debt components. If you quit job, make sure you transfer it to your new employer.
·    Every time there in an increase in your paycheque, make sure you divert a portion of it to your retirement funds. This diversion will act like a catalyst.
·    Term Plan is integral part of retirement planning. Buy one as soon as you get a job.
·     It’s advisable to invest in stocks Via MF.

Take Away: Early and Aggressive investment in the initial years will set up a good platform for your retirement funds. Once you invest, make sure you stay put till you retire. Allow the Employee Provident Fund to Grow. Don’t liquidate this amount. 

Is Retirement Planning Really Complex?


Anonymous said...

Nice article!!!

WealthUCreate said...

Thank you sir.

mortgage experts & home loans said...

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WealthUCreate said...

Thanks for spending your valuable time. Your comments are encouraging.

Anonymous said...

excellent article....nicely put

WealthUCreate said...

Thanks You Sir...

Gaurav said...

Nice article, best thing is you kept it simple.

WealthUCreate said...


Thanks for your compliments. Have you planned your retirement?

retirement planning jacksonville said...

Your post is certainly one of the best source of valuable information every reader must follow. Glad to hear a lot from you soon. Keep on sharing! Thanks

WealthUCreate said...

Thanks Jacksonville... would try my best to keep the steam on.

Shankarraju said...

Very nice article. If I had known this, I would have invested my full year salary 10 years back. I say to myself "Better late than never". I am wondering if the solution for retirement is this simple, why people are complicating much ? Maybe they don't have right information at right time ...

WealthUCreate said...

Thanks, :) I agree, we cannot change the past but we can however control present and shape our future.
You are just 31 and you still have a long way to Go... Happy investing

Shoba said...

I had read all your articles. Its really very enlightening and informative... Pls continue your good job...

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