Retirement Planning with Systematic Investment Plan (SIP)
       By: Jiten Sukhrani
Posted: 2011-04-02 02:20:29
The year was 1985. A joint family of 10 people (two brothers, their wives and kids along with their parents) was living happily with limited means. It was a period of closed economy, limited access to global products and aspirations were limited. It was a period of joint family with lower expenses and higher savings.In 2011 we are talking about nuclear family, children staying away from parents due to higher studies and employment opportunities, increased cost of medicine due to advancement of medical science and more stressful life. Parents retiring today are more dependent on their own savings to live through their retired life than getting dependent on their kids. Imagine if this is the scene today, how would be our retired life 15-20 years down the line.This creates a scary picture in front of us today. To turn your retirement the best period of your life by living for yourself and do everything that you have not been able to do during your working life or to make your retirement a painful nightmare depends on how you plan for it in early years of life. The common point is money looses its value over a period of time. A rupee value tomorrow will be lower than rupee value today, courtesy monster called inflation. So inflation becomes the single most important factor to plan for retirement.Now you may argue that one can cut down on his/her expenses during retirement life, but this is easier said than done. Imagine can you travel by a public transport once you retire when for whole of your life you have commuted in your personal car. Can you move to one BHK apartment in suburb when for your entire working life you have stayed in a three BHK apartment, at the center of the city? So rather then putting yourself in a situation where you have to cut down on your expenses it is better to plan for your retirement. Medical Bills:Medical cost has become the single most important component of monthly expense during retirement period. With growth in the economy and advancement of medical facilities this cost is only likely to go up with every passing year. Changing lifestyle is also affecting our health. Our previous generations used to walk few kilometers in a day while today we use vehicle even if we want to go to near by grocery shop. Private sector hospitals are coming up with latest but expensive medical facilities. This will surely add to our medical bills going forward. Life Expectancy:With better quality of life and medical facilities, life expectancy of average Indian has gone up to 80 years. So if one is retiring at the age of 55 he/she has another 25 years to survive during his/her retired life. This is almost equivalent to his/her working life. This increases importance and requirement of proper retirement planning. No government Support: Unlike the US and UK where they have government supported retirement benefit scheme and state pension respectively as social security benefit during retirement, the government of India does not provide such benefits. So again you are on your own.Its only few government employees and selected private sector employees who get pension after retirement, leaving majority of workforce on their own. Approach towards building retirement corpus:The basic things to remember is start as early as possible and invest in right asset class. The biggest advantage of starting early in power of compounding. For e.g. Mr. X and Mr. Y both want to retire at 55 years of age. Mr. X starts investing when he is 25 years of age. So he has 30 years to build his retirement corpus. Even if he invests only Rs.5000 p.m. in equity mutual fund that gives him 15% return p.a. his money can grow to Rs.2.82 cr at the end of 30th year.Mr. Y starts investing when he reaches 40 years of age. So he has 15 years to build his corpus. He starts with monthly investment of Rs. 10000 in equity fund on which he earns 15% return. Even though his investment value is four times higher than Mr. X his end value would be only Rs.62 lakhs. This shows the power of compounding.Conclusion: For every one of us a ten-letter word ‘retirement’ brings images of sitting in the garden of your house with your life partner, playing with your grandchildren while reading morning newspaper. Taking your wife to the vacation on a foreign location every year. To make this reality, one requires proper planning for his/her retirement. Retirement planning will change your mindset from ‘ I want a happy retired life’ to ‘ I will have a happy retired life’.
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