Why Retirement Planning is Important !!
Ramesh and Suresh both are colleagues.
One day Ramesh came to Suresh to talk about a travel plan. But the conversation drifted to more important topics. Let us see what they discussed about.
Ramesh: Hi Suresh, How are you?
Suresh: I am good, what about you?
Ramesh: I am good too, I was thinking that the weather is good, why don’t we go for a Lonavala trip on Sunday.
Suresh: Sorry, but Sunday won’t be possible for me.
Ramesh: Why? What is so important in this lovely weather, we will watch Sunset from Tiger point.
Suresh: I agree that weather is good but, first , there is little chance that we will be able to watch the sunset in the cloud filled sky and second, I have to review my sunset years’ planning, i.e. my Retirement Plan.
Ramesh: Retirement? Aren’t you just 28 years old, where from Retirement comes into the picture? Also, you said review; does that mean you have already planned for Retirement?
Suresh: I can understand your confusion; people take Retirement planning very lightly. Tell me one thing, did you not buy a Life Insurance for you last year?
Ramesh: Yes I did because I do not want my family to suffer financially in case something happens to me.
Suresh: Yes, very good decision indeed. So, in other words, you covered for the risk of dying early?
Ramesh: Yes, correct.
Suresh: And what about the risk of Living too long?
Ramesh: Living too long, what are you saying, is that even a risk?
Suresh: Absolutely and with higher probability of occurring too. Ok, tell me, at what age you want to Retire.
Ramesh: I haven’t given it much thought but may be 55 years of age.
Suresh: Good. Do you know a person of Retirement Age, i.e. 60 years is expected to till 78 years under normal circumstances.
Ramesh: Oh, ok.
Suresh: And you want to retire at 55 years, so that means after retirement you will live for 20-25 years going by current data.
Ramesh: Yes, we can say that.
Suresh: And you will agree that medical science is getting advanced day by day, so in all probability this number will increase.
Ramesh: Yes, you are right.
Suresh: You are 2-3 years older to me, so you must be around 30 years of age.
Ramesh: Correct, I celebrated my 30th birthday three months ago.
Suresh: So, you have around 25 years left of working life to provide for as many years of retired life.
Suresh: I am sure you must have plans for your Retirement, like world tour, taking up some social work, may be setting up a school or something else. Also, you will like to maintain a certain quality of life that you would have achieved by then.
Ramesh: True, I think I do have some plans like you said, nothing concrete yet though, but I get the drift. And yes, you are right about the quality of life too.
Suresh: You know that due to inflation the prices increase year on year. So let us say to lead a good lifestyle you need 1 lakh monthly expenses today, do you know you would need around 5.4 lakhs per month at the age of 55 yrs at 7% inflation rate. That is, around 65 lakhs per year and that too will increase next year due to inflation.
Ramesh: Oh, this seems huge. I think I should also think about Retirement planning. However, I have few queries to ask.
Suresh: Please go ahead.
Ramesh: I have been investing in PPF every year, EPF also gets deducted from salary; will this amount not be sufficient? Also, should I not plan for my Child’s education and for my own home that I want to buy in a few years?
Suresh: Very valid questions. First I would answer your second question. We tend to ignore Retirement planning in lieu of other financial goals such as you mentioned. You yourself agreed that amount required at Retirement is huge then shouldn’t you start planning early for it.
I am not saying save just for retirement but you should not delay and start planning for it as early as possible, along with other goals. Regarding your second question, why don’t you come home on Sunday and we will discuss it and more related things over Coffee and Lunch. We will go over how much amount might be needed at Retirement and how to plan for it.
Ramesh: You got me thinking, I think this discussion is more important than the Lonavala trip. I will meet you on Sunday.
Continue to Part 2: How to plan for Retirement?
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