Retirement planning is one of the most important financial decisions a person makes in life. There are a number of challenges, and if you don’t get your finances in order with smart planning and consistency, you’re unlikely to reach your retirement goal. When planning for retirement, one has a number of questions, including: Where to put money? How much and for how long?
Who better to answer these questions than those who have experience?
In a retirement planning series, MintGenie interviews a retired senior citizen each week to explore how they planned for their retirement, the investments that worked for them, the ones that didn’t, the advice they have for younger generations, and more.
This week we interviewed CP Rao, Retd. Principal Chief Commissioner, GST to find out how he planned his retirement and learn some lessons.
Rao says that since financial literacy is very minimal in the public space, investments in institutions like government, public sector bonds, public sector banks are preferred. “While the returns are above average long-term inflation (RBI puts it at 4% with a range of 2%), this should be kept in mind. The higher the better,” he says.
Edited excerpts:
How did you plan for your retirement and did you follow through with that plan?
The department conducts training for employees, along with their spouses, on how to prepare for retirement. Investing terminal benefits (terminal benefits are not taxed) is part of the training. The two factors considered were safety and reversibility. Bank fixed deposits, postal savings (which offer higher interest) and specific schemes like 15 years investment which offer higher returns were offered. Mutual funds (no specific company) were also recommended. The choice was left to individual employees. I generally followed the plan by investing about 50% in FDs and the rest in various government schemes including about 10% in public sector bonds. As the returns on terminal benefits are taxable, we have reinvested a portion of the returns in schemes that offer tax deferral.
What were the investments you made apart from government aid?
As mentioned above, in public sector bonds.
What do you think works best for retirement planning and what doesn’t?
It depends on the risk appetite. Also, financial literacy is very minimal in the society. The literature available in the public domain is often contradictory. For seniors, safety is paramount. So investments in institutions like government, public sector bonds, public sector banks are preferred. As long as the returns are above average long-term inflation (RBI puts it at 4% with a 2% band), it should be considered. The higher the better.
Also Read: Your Questions Answered: What Are the Best Tax Saving Investments for Seniors?
What advice do you have for GenZ about early retirement?
GenZ refers to those born between 1995 and 2010 as I understand it. They will be aged between 13 and 28 years. For those who want to retire early, there are two prerequisites – first, you must have enough bank balance/investments/inheritance to last you the next 50 years for survival, enjoyment, contingencies and hobbies for yourself and family, and second, a constant passion to keep you mentally satiated. If you retire early, please ensure at least the first condition by accounting for inflation and planning for your retirement.
What do you think are the most important factors to consider when planning for retirement?
Factors to consider – although individual circumstances may vary – are: a) a careful assessment of current assets and liabilities together with future assets and liabilities. b) Investment in such a way that there is a fixed regular income as well as a certain capital which is resistant to inflation. c) Allocation of investments and risk. Investing in real estate, gold, etc. and stock market instruments such as debt and equity. Even equity can be divided between long-term and short-term investments. d) Trying to be well informed regarding the economy in general and specific sectors in which you have invested in particular. e) When in doubt, err on the safe side. Better to be safe than sorry. f) Informing your spouse/family about your investments, maturity dates, list of passwords for your bank accounts, etc. and where you physically stored them so that in the event of an accident they are not left in harm’s way. g) Preliminary preparation of a will in case the assets are self-acquired. In other words, plan your legacy while you’re alive. h) Insurance as appropriate, neither over nor under.
Retiring at 45 requires impeccable planning, disciplined savings and strict spending control.