Retirement is why we work hard for
We study hard to get a good job or to achieve success in business, or whatever our chosen path is. We spend our formative years learning at a furious pace and try and get better than our peers so that we can grow faster. Working in many parts of South East Asia and the Indian subcontinent means 12-14 hours a day and many weekends being spent managing work at home and leaving little time for oneself, family, and friends.
Why do we do all this?
I agree that this is a no-brainer. The dream of a beautiful retirement is what keeps us going. We imagine we will live in a big house and be taken care of by others. We will have plenty of money to spend to indulge ourselves, and do whatever makes us happy.
In all the chase, I think we forget to plan our retirement. The difference between dreams and reality is often so stark that we wish we could go back and do some things differently. However, that is not possible as time once past is past. Hence, it is pertinent to plan ahead, monitor the investments, and ensure that our dream turns to reality. Life after retirement should be all about you and the happiness of your loved ones.
What is good retirement planning?
For most of us, retirement planning begins and ends at buying a dream house in the city where we have spent most of our working years, or a place to stay in our ancestral town. This asset perhaps is the biggest loan most of us take while working so that the house is ready for occupation as soon as we retire.
What neglect to plan for is a steady pension income so as to meet our expenses and cater to emergencies if any. By starting early and having the ideal asset mix, we can allow the power of compounding to work in our favor and live peacefully.
We advocate that you buy an equity plot, or a good allocation of blue chip stocks or ETFs or funds, and let it nurture for 20-30 years. If we invest in the right instruments without having any forced lock-in or exit charges, we would have built up to a sufficient monthly income for the 30 years post retirement.
The magic of compounding can only happen over the years, especially since most of us will not have enough money to invest on any given date through our careers. This is why we do not recommend a forced investment as high embedded charges would be incurred. These structures are sold in the market by agents to earn high commissions. Instead, we believe in setting a mental lock-in to not withdraw funds or book profit unnecessarily and only take what is needed. Many of our clients have got these revelations after years of investing, and not growing their wealth sufficiently.
An example of good retirement planning
One of our clients was heavily invested in real estate, fetching him 6% pre-tax Dollar returns which we found insufficient to cover for his retirement. We showed him the same with the help of a Goal Tracker. As per the Goal Tracker he should look at achieving a minimum 7% annual return with a minimum yearly top-up of USD 34,000 a year for 20 years and gratuity top-up at the end of the service to achieve USD 2,000,000 in 20 years. This made him aware that his real estate investment was not enough to meet the ends.
He therefore started with a small amount in the Founder’s Portfolio where he made more than 20% returns in the first year itself. This helped shape his investment mindset to achieve returns in the high teens, year-on-year until his retirement. We are extremely glad that the Goal Tracker was used as an effective tool to take stock of his investment and guide him on a goal-oriented path that has changed his life and given him and his family peace of mind with regard to the future.