FINANCIAL PLANNING: Are you doing enough for retirement planning?

All of us want to retire comfortably. However, not many of us plan for it. In fact, creating a retirement corpus is often seen by many as an activity that could make them compromise today's lifestyle. Many investors delay investing for retirement thinking that they have enough time on hand to do so.

Then there are those, who despite having the ability to invest on a regular basis, do not start investing thinking that they require a large sum of money to begin investing for this goal. Similarly, there are instances wherein investors prioritise short- and medium-term goals at the cost of ignoring their needs during one of the most crucial phases of their lives.

The moot question, therefore, is how should one go about planning for a comfortable retirement? Even if you start investing smaller sums at an early age and continue the process un-interruptedly till retirement, a combination of healthy returns and power of compounding can produce amazing results. It is equally important not to withdraw from your retirement kitty during the accumulation phase. You can avoid doing this by creating an emergency fund that can help you tide over financial exigencies.

While investing early is important, you must choose the right asset class and follow a follow a disciplined investment strategy. Unfortunately, many investors, especially those who don't have a pension facility, err on this aspect of their investment process. Thinking that amount accumulated through Public Provident Fund, Provident Fund, gratuity and Fixed Deposits will be enough to generate adequate income through their retirement years, they refuse to look beyond these options. Clearly, they under-estimate the impact of inflation on their expenses and often struggle to generate enough regular income to meet their requirements.

There is also a feeling that in case of a shortfall, their children will provide for it. While it can be passed off as a natural instinct of parents, not having enough can result in compromising your dignity and needs in those important years of your life. As is evident, there is a need for you to make some smart money moves, which involve budgeting as well as looking beyond traditional investment instruments and embrace market-linked products offered by mutual funds. This will give you a chance to save as well as accumulate more and earn positive real rate of return, that is, gross returns minus taxes and inflation.

For someone who starts investing early, equity funds should be the mainstay of the portfolio. If you are looking for a combination of tax savings and building a retirement corpus, there are options like retirement funds and equity-linked tax savings schemes (ELSS). There is an option to invest in National Pension System too. If tax savings is not a consideration, well diversified plain-vanilla equity funds can be considered. Hybrid funds, investing in a combination of equity and debt in varying proportions, can be a great option for those who may not have sufficiently long-term horizon required for investing in pure equity funds.

No doubt, there are attendant risks of investing in market-linked products, but these can be mitigated through an asset allocation strategy based on your goal-based investment approach and by investing in a disciplined manner. Once you reach closer to your retirement age, the portfolio should be rebalanced in a phased manner, to make it fit for income generation, as well as generate some growth after retirement. A Systematic Withdrawal Plan (SWP) can be a great option to generate regular income in a consistent and tax-efficient manner. This is significant as it removes uncertainty over receipt of a certain sum every month despite being invested in market linked products. Remember, tax efficiency of returns can make a huge difference to what you get to keep when you retire.

The writer is CEO, Wiseinvest Advisors