Start Early to Reap Long-Term Benefits

By Yatin Shah, Co-Founder, Executive Director, IIFL Investment Managers

It Is often said that where one road ends, another begins. Retirement is a lot like that. It might be the end of one journey, but It Is also the start of another great one. Before any journey, we plan, we put our thoughts together, focus on what we want from it and then evaluate the resources that are required to make our journey comfortable and successful. Retirement planning is akin to planning a journey for the next phase of your life.

When you start working, retirement seems like the farthest thing on the horizon. Hence, most people fail to plan adequately for the purpose. However, retirement planning should be one of your key financial goals and should figure prominently in any robust financial plan.

What does your retirement look like?

Investors have myriad goals which they wish to achieve at different points in time in their life. Similarly, each individual pictures his/ her retirement years differently. While some might want to start a new business or invest in a passion project, others might want to focus on charity. While some might want to travel the world, others might want to settle down in the hills. It is important to understand what you expect from retirement and create an investment mandate that clearly reflects your goals.

How to evaluate one’s resources?

Evaluate all your current and future resources. Your resources would include your current income, income from investments, future cash flows like provident fund, income from part-time employment, interest income and maybe even rental income. You must also make note of your current expenses to arrive at a net disposable income. Your current income is your biggest resource and you need to start allocating a portion of your current income to retirement savings, as early as possible.

How do you get there?

This is the most important step in retirement planning. You need to allocate investments in such a way that they are capable of meeting your retirement goals without compromising on the quality of your life and portfolio. If started early, retirement investments can be long-term in nature. This means that they can weather the short-term volatility of equity investments to reap long-term gains. When creating a robust portfolio, it is very important to ensure diversification across asset classes and not carry concentrated exposures to an asset class, sub-asset-class, single fund or instrument. This would ensure that funds are available at a time when there might be little alternate sources of income. Systematic long-term investment created in a phased manner over a period of time and a systematic withdrawal plan can be used to avoid market timing risks. Don’t leave retirement planning for the winter of your life. Start today to ensure that it is always summer.

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