Confessions of a Man nearing Retirement
As the flight took off to New Delhi, I closed my eyes in silent contemplation. The conference at New Delhi is going to be the last one in my career. My thoughts went back to those days when I struggled to inculcate in myself, the habit of financial discipline. You know, at the age of 60 today, I’ll be retiring in two weeks’ time. While I eagerly look forward to days of leisure and serenity, I am proud to say that my financial planning has played a vital role in welcoming this phase of my life.
Let me share my financial planning story with you.
I started earning from the age of 24 years, but I was as carefree as a bird then. I was enjoying the financial freedom of not asking for a ‘pocket money’ from parents. However, when I got married at the age of 27, I realized the importance of savings and investment. So, I listed the following life goals for myself by making sure that:
- I retire rich: I am not going to get a salary once I retire. So, I will take steps to make sure that I will have enough money to life exactly the way I have been living so far.
- I can meet all my medical expenses: I will ensure that I will set aside enough money to afford huge medical expenses that may arise, either for me or my family.
- I don’t owe anybody anything: I will clear off all outstanding loans, well in advance, before I retire.
- I get monthly income even after I stop working: Obviously, by the time I retire, my wife and I would be used to a particular standard of living. I will get a good retirement plan that will give me monthly income so that both my wife and I can continue the same standard of living.
Now, having listed these life goals, my next step was to do a good financial planning. For that, I decided to make a sound investment portolio. I realized that it was important to keep a long-term horizon and ensure that I don’t put all my eggs in one basket. So, this is how I went about it.
1. Voluntary Provident Fund (VPF)
12% of my salary, every month, was contributed by my employer, as employer’s contribution towards recognized Provident Fund. However, what really helped me in building a big corpus was the additional contribution towards PF that I made voluntarily known as VPF, at 12% of my salary, every month as employee’s contribution. Due to the power of compounding, this has helped in building a reasonably huge corpus. The lump sum amount of VPF received at the time of retirement is tax free subject to conditions of section 10(12).
2. Term Insurance Policy
After the birth of my son, life changed for better. But, I started worrying a lot. What would happen to my family if I were to die because of accidents, terrorist attacks or illnesses? My parents had already retired and my wife was a homemaker. I was the sole breadwinner of the family. Plus, I had a home loan liability on my head. To ensure that my family didn’t struggle should anything happen to me, I decided to take term insurance plan with critical illness and accidental death benefit. God forbid, if something happened to me, the sum assured from the policy would not only meet my family’s expenses, but also clear my home loan, if remained outstanding. I can’t tell you what peace of mind I got after buying term insurance. After all, I had secured the future of the people I loved the most!
3. Money-back Plan
During my 30s and 40s, money-back policies were quite popular. They still are. I invested in one money-back policy too. It enabled periodic payouts during the phase when I needed money the most –, child’s admission in an engineering college and then, his marriage. It also ensured that it helped in fulfilling the finer things such as my daughter’s dance classes and my son’s gym fees. For a middle class man like me, where every penny spent was important, I was glad that I could fulfil these small wishes of my children.. In addition to monthly payouts, it also guaranteed a lump sum payout to my family should I pass away.Liquidity and protection – this money-back policy fulfilled both my needs.
4. Health Insurance
A life insurance policy covers your life, not health. Thanks to advances in medical science, the life expectancy rates have improved. However, this comes with a price – the increased cost of medical exigencies. My spouse and I are covered through a medical insurance policy taken by my employer. But, since I am retiring, this benefit would be no longer available to me. Keeping in mind the fact that our financial resources dwindle very fast when faced with ailments, I had purchased an additional medical insurance policy, which offers a higher financial protection, if there be such a need. Also, this policy covers both of us upto the age of 75.
There are some points which anyone needs to note while planning to buy a health insurance policy:
- The earlier, the better – as, the younger you are, the healthier you are. This translates into higher and varied coverage(which can include a vast array of diseases) with lower premium.
- Ensuring that the policy offers coverage for eye, ear and dental ailments – as these are going to strike often as one ages.
I was covered under the Employee Pension Scheme (EPS). Though I knew this pension plan earned only a fixed rate of interest annually and there was no sufficient growth of savings, there was not much I could do. It was only in the later years of my life that the market – linked pension plans such as government initiated National Pension Scheme (NPS) and private institutions led Unit Linked Retirement Plans from were launched in the market.
I wish these plans were available during my early income years to enable a completely stress free retirement planning. Well, that was then. I have advised my 35 year old son to invest in unit linked retirement plans. He is young, has limited financial commitments and can afford to have a high risk appetite with a long term investment horizon. Just as a term insurance plan financially equips a person to combat the threat of dying young, the retirement plans welcome the prospect of living long.
What else did I do right?
- Pay off Outstanding Loans
One of my earliest life ambitions was to have a roof over my family’s head. I availed a home loan when I was about 35. But, I planned my finances in such a way that I was able to remit all the outstanding installments by last year. Hence, I do not have the burden of any outstanding dues, which can otherwise, take a major chunk of my retirement benefits.
- Systematic Monthly Investment Plans (SIPs)
For more than a decade now, I’ve been investing in equity through SIPs. Should say, I’ve been a late entrant into this. But still, SIPs seem to be better equipped to beat raising inflation by offering competent returns. However, at this stage of life, I am now planning to reduce the risk I take with my investments and shift to safer instruments such as fixed deposits and public provident fund.
My Financial Regrets!
- Not Being an Early Bird
I wish I had started saving and investing from my first salary! I wasted almost 3 precious income-earning years. If I had invested my 3 years equivalent salary in a long – term instrument, my corpus would have added up to more.
- Not Investing in Market- linked Products
During my time, salaried individuals like me were not that market-savvy. We liked to be conservative and were happy with fixed returns, even if they were less than 7%. I wish I could have taken interest in how market-linked funds work and invested in a few of them to grow my savings @ 10-12% in the long-term.
Anyways, when I look back at my life, I am quite satisfied with my retirement planning. At least, I did it. I have some friends, who never though about taking retirement planning seriously when they started their career and now they are struggling to chalk a plan to pool their funds for retirement. But I need not worry about my finances, in my ‘silver’ years. When there is financial peace, you tend to focus on finer aspects of life like long-cherished hobbies. I have enrolled myself for guitar lessons.
My thoughts halted when I heard the announcement that the plane would land in New Delhi in a few minutes!
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