Retirement Planning – sounds very intimidating to many people. However, like all long journeys it begins with a small step. First of all you need to accept that you will retire, and like all events in life the person who is better prepared will face it better. So retirement planning can be made to look simple by breaking it into small steps. If it looks scary – each step will be only 20% scary if we can split it into 5 steps!

So let us start.

Step 1: If you have a financial plan include retirement planning into that plan. It helps to start early, and I have no clue how to convince anybody in their 20s to plan for their retirement! Imagine asking a person collecting the first salary to think of investing for retirement. It is tough. However it helps. Like any budget retirement budget starts by estimating your income and expenditure during your retired life. The most important estimate is how much will be your retirement expenses be – both day to day expenses and big chunky investments. I know 24 year olds who have started a SIP of Rs. 3000 – particularly for retirement. Do not scoff, it will add up to about Rs. 3 crores if history were to repeat itself. More importantly these are people whose income will increase – and so will the SIP amount. I loved the fact that at the age of 24 they did listen to me and started the process.

It is very likely that you will buy at least one house, a few cars, white goods, tours and holidays, nursing and care etc. during your retirement. Apart from these capital draw downs that you do, you will have to estimate the expenses on food, shelter and clothing too.

How much you will spend in retirement is a function of your standard of living and how long you expect to live! If your parents (or grandparents) have been living to the age of 90 years, chances are you will hit a century!

Make a realistic estimate of help that you may need for day to day living – say nursing, assisted living, old age home, inflation, un-insured medical expenses, medical insurance expenses – these are what we can call the ‘non-negotiable’ expenses. Then there are expenses like travel, fun, eating out, entertainment, – called the ‘discretionary’ expenses. These expenses will happen if the body listens to the mind!

Next draw up your list of things you own and the amounts you owe! Estimating how much you really have is an excellent exercise which you may or may not have done. This statement will tell you about all your assets and liabilities – and your ‘net worth’. Your net-worth is the mathematical difference between your assets and liabilities. Many people forget to add the cash value of their life insurance, their provident fund, etc. in their net-worth. Ensure that you include all your assets, and all your liabilities like home loan, car loan, personal loans, etc.

Your retirement life should be distributed into at least 4 parts, if not more. In case you retire at 55 and live till the age of 95 years. Your lifestyle (and therefore your expenses and income) will be different in 4 blocks as follows:

55-65,     65-75,      75-85 and       85-95.

Once you have decided your ‘blocks’ estimate your ‘retirement income’. From 55 to 65 years you may end up earning some amount by pursuing some activity – right from maintaining accounts for co-operative societies to teaching in a coaching class. Apart from this of course you should identify any income you will have in retirement – pensions, as well as any rental, dividend, interest, or other income.

Systematically withdrawing from your capital is something which you should consider only after you and your spouse reach the age of 72-73. Till then you will have to live within your income.

So make sure your expenses are less than your income!