Why Retirement should be the first financial goal you plan for

Many of my friends in Mumbai often mention that they want to retire early! Some want to retire in their mid-40s, some right away, and some don’t mind working it out till the official retirement age of 60. And yet, while there’s a lot of talk, almost none of them have any idea what kind of money they will need at retirement, or have taken any concrete steps towards planning for it. Yes, some have started saving, but will that saving be enough is a question nobody is asking.

I’ve been doing wealth management for over two decades now, and my first course of action – almost always – is to recommend that clients build a financial plan for retirement. While other financial goals are not to be ignored, retirement planning is of paramount importance –and here’s why.

1. Retirement is both the farthest goal (in terms of time), and the biggest goal (in terms of value)

Let’s say Mr X who lives in Mumbai and is aged 43 has 2 financial goals.

a. Retirement at age 60
b. Post graduate education abroad for his only daughter (when he turns 51)

Now, planning for which goal is most critical and why? The simple answer is in the time and magnitude of the goal. The retirement goal is 17 years away while the education goal is 8. Furthermore, wealth accumulated for retirement must sustain for another 25 years (assuming a life expectancy of 85), while the wealth for post-graduate education must sustain only 2 years.

So, while Mr X has more time for retirement, any slip in the financial calculations towards his retirement goal can have a much more profound impact because of how much farther it is.

Here’s an illustration:

*Calculated by assuming monthly savings are invested @ 10% return (before & after retirement); inflation at 6 %

The above illustration demonstrates how a relatively small difference of Rs 26,476 in the monthly savings rate can create a massive shortfall of Rs 1.47 crores at retirement. This is because goals that are several years away see a manifold impact of compounding, both positively (on returns) and negatively (because of inflation).

2. There is no recourse or path correction if you get this wrong

If you don’t prioritize retirement planning, you don’t get a second chance. In the above illustration, if Mr X does get his planning wrong for the education goal which is 8 years away, he can course correct by either selling some of his existing assets or taking a loan. But if he gets retirement calculations wrong, what can he do? He can’t earn anymore, and therefore is unlikely to get a loan. There is also no time left to course correct. The only way out, then, is to compromise on one’s lifestyle and live more frugally for the rest of your living years.

So, if you’re still procrastinating about planning for retirement (or financial freedom), simply don’t! It’s imperative you get an accurate measure of what it takes to have a comfortable and compromise free retired life. If you feel you can’t do the numbers yourself, get professional help. But get it done quickly. A stitch in time will save you nine!

Rohin Pagdiwala
Founder – Pagdiwala Investments
AMFI Registered Financial Distributor, Mumbai
9820191834

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