V Viswanand, Senior Director and Chief Operations Officer, Max Life Insurance, lists out a few important steps to start planning for your golden years

Illustration: Uttam Ghosh/Rediff.com

A friend of mine came across a Facebook post depicting photographs of a Bollywood star of today and how she will look when she grows old.

A bit of search led him to an app which gave similar outcomes for him. While the app showed him what he would look like 20 years from now, he began to get inquisitive about his financial state at that time.

After a bit more of searching on the net, he found that he might be short by a few crores to lead a comfortable retired life!

This was indeed a wake-up call and prompted him to initiate retirement planning on a war footing. 

A research by Max Life Insurance–Nielsen indicated that this is the state of affairs for 60 per cent Indians as they start planning for retirement only after entering their 40s.

Those who are still in their 20s and 30s are lucky to be able to learn from this story. But those of you in their 40s must be going nuts to find a suitable solution.

Here are a few suggestions to plan for your golden years:

Create your retirement balance sheet

All that you have saved for your retirement will go into the asset side whereas the corpus you will need to live a comfortable post retirement life and incomplete liabilities like loans, expenses on children's higher education and marriage etc. will go into your liabilities side.

While creating this balance sheet, keep the following in mind:

• You may go horribly wrong in calculating your life expectancy based on the age of your grandparents or parents. Be prepared to live even longer… life expectancy is on rise dramatically in India.
• You may ignore inflation at your own peril. The value of money reduces to half in 12 years if the rate of inflation is 6 per cent.
• Don't totally depend on physical assets. Past global examples indicate that real estate and gold can lose its value dramatically in a short period of time. It was the melt down in real estate prices that triggered the global financial turmoil in 2008, remember?
• The quality of healthcare is improving which will add many more years to everyone's life. However, healthcare will come at a significantly higher cost than in the past. While filling up the liability side, don't ignore the cost of healthcare.

Creating a viable retirement plan

Once you have your balance sheet ready, most of those in your 40s may find their balance sheet in red with post retirement liabilities exceeding their assets or assets not being sufficient to support long post retirement years.

Is dependence on children in those retired years the only solution? Certainly, not!

Here are a few options:

• Pay yourself first. Create a retirement corpus. Discuss with a professional financial advisor to understand the gap in your retirement planning. Start putting money aside to fill that gap immediately.
• Create separate financial plan for each life stage goal and promise yourself not to dip into your retirement corpus for those needs that may fall earlier than your retirement. Make sure you review your retirement plan at least twice a year.
• If after all the planning you still find shortfall, plan how you can extend your earning years.
• Buy a health plan and critical illness plan soon to fund your healthcare needs in future, as you and your spouse grow old.

It is time to give retirement planning a serious consideration. While you might be curious about, 'how will I look when I am 60?' an equally important question to ask is, 'how will I feel when I am 60?'

Creating a retirement plan and taking the first few steps toward it will go a long way in ensuring a 'happy feeling' when you see your projected photograph at age 60!