If you are less than 45 years, it is highly likely that you would not have given a serious thought to retirement. For it feels important to focus on achieving immediate life goals — buying a house and saving for your children’s education — than saving for retirement that is 20-30 years away.

Besides, retirement planning can be depressing, especially when you calculate the amount of money you require to retire comfortably.

In this article, we discuss how you can start your retirement planning early and yet reduce the emotional and financial stress.

Post-retirement expenses

Your retirement portfolio will be used to meet three major post-retirement expenses — living, leisure and health-care. Now, all three are equally important. You need enough money to meet your health-care costs and living expenses and enough to spend on leisure.

The total amount you need to save during your early working life to meet all three expenses during your retirement can be stressful, especially because you have to pursue immediate life goals. That is why we are asking you to focus only on saving to meet your retirement living expenses first. Your income will typically increase exponentially after mid-career.

Your liabilities tend to reduce, as you would have paid down your home loan and saved enough or already met your children’s education expenses.

So, increase in income and decrease in liabilities can help you save much more during the last phase of your working life. You should, therefore, focus on saving to meet retirement leisure expenses when you are between 45 and 60.

What about health-care costs? This portfolio has three tiers.

The first tier is emergency funds to meet medical emergencies. The second tier is medical insurance and the third tier is equity investments to meet high-cost unavoidable surgeries. You should carry this portfolio through your life.

Of course, your health-care costs will be higher during your retirement and not just because you are older. You tend to be healthier when you are busy than when you are not!

So, investments to meet health-care costs will have to be higher during retirement. But you can add more investments to your health-care portfolio and buy more health insurance after you cross 45.

That leaves us with your post-retirement living expenses. You are already contributing towards your pension or provident fund. You should allocate this money to meet your post-retirement living expenses.

Besides, earmark additional savings every month for your post-retirement living. Why? The total amount for that can be very large; you need enough money every month for 25-30 years to meet your post-retirement living expenses.

It will be difficult for you to accumulate enough wealth if you only start saving from 45.

Savings process

You should set-up a mechanical process to save for your post-retirement living expenses. That is, you should set-up systematic investment plans (SIPs) in equity mutual funds and recurring bank deposits early in your career to meet your post-retirement living expenses.

The hardest part is in setting up these SIPs. After all, the happiness you get from current consumption and meeting immediate life goals is much more than saving for a distant retirement goal. Fortunately, SIPs help you distance yourself from your savings decision. How? Your savings amount is automatically debited from your bank account. This lowers your stress levels, as you will soon adjust your lifestyle to the monthly cash flows remaining in your bank account.

The writer is the founder of Navera Consulting. Send your queries to portfolioideas@thehindu.co.in

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