Money planning differs significantly before and after retirement

Before retirement, it is about accumulating a sufficient corpus; subsequently, it is about generating a regular income stream

Understanding the difference between financial planning before and after retirement is extremely critical—more so for those planning to retire in the next 10 years.

For simplicity, let’s refer to Financial Planning before Retirement as FP-Before and Financial Planning after Retirement as FP-After in this article.

FP-Before focuses on the accumulation phase—the years before retirement. A good financial plan (before retirement) will make sure that you set a realistic retirement corpus target. It will also push you to invest enough to reach the target retirement corpus at the right time in the future. It goes without saying that in the years before retirement, there are other goals such as children’s education and house purchase too.

So, a good financial plan will take care of all these along with the goal of retirement. FP-After, on the other hand, focuses on how your existing retirement corpus will generate an income stream during your retirement years and how your expenses will be taken care of. It is, as mentioned earlier too, aimed at ensuring you do not run out of money before your years run out.

Sufficient retirement corpus

If you talk to any 60-plus person who isn’t ultra-rich, has retired and is living on income from retirement corpus, his/her concern would be, “Will my money last?”

Let’s take a small example to understand all this.

Suppose, at the age of 40, you decide (after procrastinating for several years) that you should begin saving for retirement seriously.

So you start with a small Rs 10,000 monthly investment in a 70:30 Equity: Debt portfolio. You increase the monthly savings amount by 10 percent every second year. So you put in Rs 1.2 lakh each in first two years, followed by Rs 1.32 lakh in the third and fourth years, Rs 1.45 lakh in the fifth and sixth years and so on. You do this for the next 20 years till your retirement at 60.  Assume the returns you get on equity are the same as the actual annual Nifty 50 returns between 1999 and 2018. Debt returns have been assumed to start from 9 percent and taper down to 7 percent.

Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk.

Capitalstars is a SEBI registered investment advisor. Schedule a call with Capitalstars investment consultant or drop a mail at backoffice@capiltalstars.in and we will get in touch with you. You may also call us on 9977499927.

We will be happy to help you plan your retirement. ☺

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