What is Retirement? A phase of life when you devote time to yourself and relish it with comfort and ease. Though, many relate retirement to some age, say like 54 or 60yrs. However, in reality retirement is related to an amount of corpus and has no link with age. Because, what people seek is actually financial independence to accommodate the various needs and expenses of their retired life. Wherein, during your working life, you need to save and accumulate a sufficiently large corpus which can meet the income needs of your retired life. Unfortunately, many of us do not give adequate importance to retirement planning until the later stages of their working career.
What is Retirement Planning? The process of defining your retirement income goals and accomplishing them with necessary actions and decisions. It involves analysing your financial requirements, objectives, current financial state, and the anticipated future cash flows to develop and harness a comprehensive retirement roadmap.
Who needs to plan for Retirement? Everyone needs to plan for their retirement. Many people think that only the salaried need to plan for retirement as they will not have enough funds once the regular source of income vanishes. However as a matter of fact, salaried individuals with mandatory contributions to Provident Fund and NPS still have some corpus (though grossly inadequate) to rely on after retirement. But the people of the unorganised sectors like businessmen, private sector employees, sportsmen, self-employed like Consultants, CAs, Lawyers, Engineers and Doctors, who do not have such an option, need to plan well in time.

Why is retirement planning more important now than it was ever before?
1. In joint families, financial security of all family members was ensured by the earning members. In nuclear families, you need to have a retirement plan for your post retirement financial security.
2. People retiring with pension will be fortunate to receive a portion of income post retirement. However, the pension in itself may not suffice as its purchasing power will gradually reduce in a few years. People not eligible for pension need to create their own pension like cash-flows from the investments.
3. Average longevity is increasing and post-retirement life spans are getting longer, with the majority of us expected to live for 30-40 yrs post retirement. Therefore, a need to ensure financial independence of your spouse, if he/she survives you. Savings and investments to ensure regular income for a long period of time.
4. Essential to factor inflation in your retirement planning. As living expenses will keep increasing over the period. The retirement corpus should be able to generate cash-flows to meet the inflationary expenses.
5. You may be forced to retire early due to a variety of factors like PMR, involuntary retirement, ill-health, to take care of ailing family members, etc. Thus, it is prudent to begin retirement planning early in life and be better prepared to face unforeseen financial challenges.
Your Retirement Planning should provide for: Monthly cash flows to meet living expenses + Unmet life goals + Contingencies + Medical Expenses + Counter Inflation + Protection from falling interest rates on bank deposits + Protection from taxes + Legacy creation
Financial independence
The most important objective of retirement planning is to achieve and maintain financial independence. 
What is financial independence? If income from your assets is enough to meet your expenses, you are financially independent. The “assets” here represent the investments which generate returns/ income for you. Examples of assets could be bank FDs, mutual funds, stocks, bonds, property let out on rent, etc. But will not include the house in which you live, gold jewellery, vehicles of personal use, etc. not generating any income for you. If your assets do not generate sufficient income to meet your expenses either due to inflation or due to excessive withdrawals, then at some point of time, you will lose financial independence and will have to depend on others e.g. children, grandchildren, friends or relatives for survival.
How to plan for retirement?
1. Estimate how much expenses you will have post retirement. 
2. If you have a home loan and plan to pay it off fully before retirement, you do not have to budget for EMIs.
3. Estimate your fund requirements for Children education, marriage and any other life goal. 
4. Majority of your current expenses like food, utilities, fuel, salaries for help/ staff, fuel and servicing, etc will continue even after retirement. You may feel that expenses will be considerably lower after retirement, however most of these will continue even after retirement.
5. Must factor inflation in your retirement planning. To illustrate: Let us assume that you plan to retire in the next 10 years and your current living expense, excluding the ones that will go away post retirement (e.g. home loan EMI, children education, etc), is ₹1 Lakh per month or ₹12 Lakhs per year. Assuming 8% retail inflation, your annual expense after retirement will be around ₹2.15 Lakhs per month (₹25.8Lakhs per annum). By no means your pension will ever increase by this rate because the retail inflation is always higher than the CPI on which DA hikes are based.
6. How much should you accumulate? Post retirement, you need to have a conservative risk profile and should not expect more than 5-6% annual pre tax return on investment. Assuming you are in the 30% tax slab, your post tax return will be at max 4-4.5%. Therefore, to get the required annual income of ₹25.8 Lakhs, you need to have a corpus of ₹6-6.5 crores. Assuming a 4-4.5% withdrawal rate after taxes every year and no other source of income other than your financial investments.
7. If you have other sources of income post retirement e.g. pension, rental income, income from consultancy etc. The same be reduced from your expenses to calculate the income needed from investments.
8. In the above example, we have assumed that you will leave your entire corpus as an estate (i.e. as a Legacy/inheritance) for your children etc. and will live only off the returns. If you want to leave a smaller estate or no legacy at all, then you can make bigger withdrawals from your retirement corpus and thus you can manage with a smaller corpus. However, if your withdrawal rate is higher than the ROI, then your corpus will keep reducing in value over time and may even exhaust before your lifetime. Thus your planned withdrawal rate should be such that your corpus does not exhaust in your / spouses’ lifetime. 
Questions to be answered in next blog?
So far, we have discussed the necessity of retirement planning, and the impact of inflation and taxation on your retirement planning. Some of the questions that remain to be answered are:-
1. Since your expenses will keep increasing even after retirement. How much more income will you need in future years? 
2. How can you get more income from your investments, despite withdrawing regularly to meet your expenses? 
3. How should you go about your retirement/ retirement planning?
4. What can be done to reduce tax liabilities? 
5. What should be your investment options?
6. What does “right asset allocation is the key to investment returns” actually mean? Is the Asset Allocation ‘Rule of 100 minus age’ actually relevant in your case and what is the recommended asset allocation in your particular case?
7. How can historical perspective and data of the asset classes performance help you? 
8. How much equity should you have in your asset allocation till retirement and how much after retirement?
9. What should be your lifestyle post retirement and does it need or can it be changed?
 
Conclusion
Hope you have got some guidance on the importance and necessity of retirement planning. 
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