Delays are costly in retirement planning : Aviva Life Insurance.: Business Line

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Whether or not you make other New Year resolutions, here is one you should make. Don't postpone savings or investments.

The new urban lifestyle has made people more prone to spending than to saving or investing.

With India Inc prospering and young professionals getting handsome packages, people today are financially independent at a younger age. As a result, most of them become complacent about their long-term finances.

While everyone is aware of their financial needs and aspirations, only a few assess their ability to meet critical long term goals - saving for retirement and saving for child's education, to name two key ones.

Yet, procrastination and delay in formulating and implementing a proper financial plan can have serious repercussions on future financial goals. Postponement in planning can result in a higher financial burden in the later stages of life, and one may not be able to save enough for long term goals.

Let us understand the cost that the delay can cause with the help of an example. Keeping in mind the current inflation rates, it is estimated that an MBA degree that costs Rs 4,00,000 today will cost Rs 20,00,000 in 15 years time.

How many parents will be financially ready to bear this cost when required for their child without dipping into retirement funds? According to Aviva Young Scholar Insights, a recent survey conducted across 12 cities in India, it was found that investment for a child's education is the topmost priority for 72 per cent of Indian parents.

But 81 per cent of parents also admitted that they have no clue on how to go about meeting the cost of their child's education. It then becomes even more important for young parents to start saving early so that the expense for their child's education doesn't become a burden later.

Apart from saving through conventional methods like a savings bank account, parents can choose insurance policies to protect their children's future.

Insurance ensures that the child's education is unhindered, in case the parents are no longer around. There are also child plans from other investment options like mutual funds which aim at creating a corpus.

RETIREMENT BLUES

Similarly, due to lack of a formal social security system in India, retirement is another top area of concern for 45 per cent of the people in India.

People exceedingly depend on provident funds and fixed deposits to provide for their requirements post retirement. But keeping in view the current rate of inflation, the steep rise in the cost of real estate and the substantial rise in the overall cost of living in India, these savings alone will not suffice.

For a comfortable lifestyle post retirement, in absence of a regular stream of income, one needs to start planning for it right away.

Here again, it is easy to save for retirement in the initial years of one's career, as there is no pressure to support a growing family and you don't have high medical expenses. However, if you delay investing even by a year, then there is a ‘cost of delay'.

Take a typical pension plan offered by insurers. A 30-year-old man with a target retirement fund of Rs 25 lakh wishing to retire at 58, has to start investing close to 24,000 an annum by way of premium.

However, if he delays this by five years and starts investing at the age of 35, he will have to pay close to Rs 38,000 an annum for same accumulated amount of Rs 25 lakh, an increase of 58 per cent. This is based on an assumed net investment return of 8 per cent an annum.

Nowadays, people can look at several options for saving for retirement like pension and retirement plans by insurance companies, mutual fund schemes.

These, when combined with PPF and fixed deposits can give an individual a balanced financial portfolio to attain the retirement goals.

Thus, judicious and proactive financial planning will make sure that you have enough resources with you in the future, to fulfil your child's aspirations and take care of your retirement needs. Start planning for future financial needs without any further delay.

Remember, while the key to successful planning is to start early, at the same time, it is never too late to get started.

(The author is Director, Marketing, Aviva Life Insurance.)