Retirement is the only financial goal for which you do not get a conventional loan. For every other typical financial goal, from children’s education to buying a home or car, you can avail a loan to complete the goal. This makes planning for retirement a bigger responsibility for an individual and also a source of financial anxiety.
A few conclusions from a retirement readiness survey we did are important to consider. One, people usually make financial plans for happy outcomes or unknown eventualities and retirement was seen by many as a known eventuality or an un-happy outcome. Two, planning for retirement was a function of the surpluses available. Any surplus available would first be allocated to the so called “happy outcomes” of children’s education, home, car etc and only if there is any extra surplus would retirement as a goal find a place. Three, people with a secondary source of income felt far more confident about their retirement plans. Four, those who came from larger joint families had less anxiety surrounding their finances.
Given the above, let me outline five things to consider that can help your journey. The first is to reframe the subject from ‘Retirement’ to ‘Financial Freedom’. The important point here is to frame it positively in your mind. The stereotype of retirement conjures a mental image of relatives with health complaints, a general lack of purpose and reduced utility. Financial freedom, on the other hand, has the potential to be framed positively for all age groups and conjures more of an image that allows you to keep working at something that gives you continuous joy and not worry about the money part as much.
The second is to realise that if money is the subject of anxiety then the real issue is that most people have only one skill that brings in the money which is the real problem. Therefore, the concentration risk you carry from knowing only one profession and professional skill. Of course, for many, that professional skill is something they can actually continue practicing for ever and not formally retire from it. Like a doctor or lawyer. But for that large cohort of office-going people, this concentration risk is real. Therefore, developing and working on more skills that you can monetise, however small that monetisation, is key for being better prepared. You can teach, be a yoga instructor, photograph food, translate or whatever you like. Having that stream of secondary income frees you from a lot of anxiety and breaks your concentration and risk of earning only from a single skill.
The third is to prioritize putting aside some money, however small, from your surplus into a retirement bucket. Remember that if for some reason you end up having a gap in meeting all your other financial goals, you could still fill that gap with a loan. But you can not fill the gap of your retirement corpus with a conventional loan. A usual thumb rule is to plan for 25 or 30 times your annual expense at your retirement year as your corpus target.
The fourth and fifth thing to remember are the mental and physical aspects of it. Having a large circle of family and friends is helpful to reduce the sense of dealing with life’s challenges alone. The pandemic has probably accelerated nuclear living so it is even more important to keep connections live and strong. Finally, the biggest factor that tends to derail a long term goal like retirement planning is your health. Taking care of your health is probably the single most factor that can help achieve all of the above.