Retirement Planning is one of the most important and expensive financial goal. An individual can get loans for other financial goals like buying a car, house, kids’ education etc. but he cannot avail any loan for meeting any shortage during his retirement.
I have come across many individuals who had decent earnings during their working years and they did pretty well when it came to saving and investment, however as they approached retirement they had very little retirement corpus and they ended up compromising on their life style post retirement planning or became financial dependent on kids
Let us understand why an individual generally falls short of his/her retirement goals and the realization happens when he/she is on the verge of retirement.
Let me tell you a story of one Mr. Kumar and his retirement planning or his non-existence of it; He had a happy family with two kids. He had a good earning; he saved and invested his money in a diligent manner. He bought a car and a house by taking loan and dipping into his investments. Then he had an EMI to pay ; any excess savings he could manage on a monthly basis was used prepay the loan. This routine was followed closed to a decade and debt reached a manageable size. Meantime, the next challenge surfaced – carrying a huge price tag – children’s higher education. So Mr. Kumar again dipped into his savings and funded the education. Every Indian parent’s responsibility will not end with funding the education of their kids. A decent wedding is a must and not an option in most cases. Mr. Kumar, the hamster, got back on the wheel and started saving for their marriage and got them married. Mr. Kumar’s clock was ticking with equal speed – he reached a ripe old age, in terms of work life, of 56 years. Now he was barely left with 4 years more of productive work life, during which he has to make enough savings which can support his retirement life of 15-20 Years, which was as impractical a goal as they came. Many of us can relate to the situation of Mr Kumar.
What went wrong in the way Mr. Kumar handled money? Lets analyse a bit;
He was myopic ; He was focusing on his next set of short term goals which came at the cost of long term retirement goals. So many individuals get into this trap, where they try to achieve the next nearest financial goal with all the available financial resources. They feel very comfortable as they keep achieving the goals on hand and finally when they are close to retirement date, they realize they are totally off track from the biggest and most expensive goal of their life.
The realization of not having enough savings and investments came very late. At the end he was left with not so very desirable options :
- Postpone the retirement date for few more years.
- Compromise on the life style post retirement
- Depend on their children for financial support
Mr. Kumar, had he penned down all his financial goals and invested accordingly since initial days, the probability of achieving all of them would have been high. The key factor is having a goal in place and then investing to achieve it – it’s called Goal Based Investing.
Benefits of Goal Based Investing in Retirement Planning
- Investing with a clear focus on the financial goals (children’s education,marriage, medical emergencies & retirement planning) helps to achieve them in an effective manner.
- Helps you select suitable Investment Asset Class (Equity, Bonds, Real Estate, Gold) based on the time horizon and nature of goals.
- Increases awareness on underfunded goals and unfunded goals : This visibility helps an individual to take effective action in bridging the gap during his working years.
- Even if a goal is not funded, individual will have realistic expectations.
Keep visiting this section – we will continue to post articles to help you plan for your financial goals. If you want us to cover any area specifically, do leave a comment below. Our experts will be happy to cover them in the next articles.
Chart out all your financial goals with clear timelines
Create an effective financial plan for achieving the same.
Remember – Investing without goals is like travelling without destination.