Retirement planning must be top priority

While it's the most prominent aspect of financial planning, probably retirement is the least prepared by the new generation. The earlier generations of Indians were either blessed with the guaranteed pension schemes or decent appreciation of real assets (including rental incomes) that helped or helping them tide away the crucial period.

Also, the life expectancy has only been increasing now due to the medical advancement while they've prepared to slog till ages of late 50's or into 60. The current generation grapples with lesser guaranteed incomes or jobs with wild swings of income generation coupled with longevity could create peril. Moreover, the lack of hardships faced by the earlier generation (while growing up) and the abundant options of consumerism changed the attitudes and behaviour towards money.

Money is mostly perceived as to be spent than saved or invested. The increased consumerism along with access to credit (at times cheap) and enormous options of availing it like BNPL (Buy-Now-Pay-Later) have only worsened the money mismanagement. The craving for the latest gadget, the experiential living (vacation etc) have cropped as the top priorities over saving for nest-egg or investing for the future.

Even when investing, the recent warps of cycles where the busts and booms were shorter than those of the yesteryears have corrupted the approach to investing. Unlike the fields of science where a newer solution to the older problems makes life easier, when it comes to money, the ruling aspects of human emotions i.e., greed and fear remain same. The conquest for these lies in diligence and persistence which has no shortcuts, unfortunately.

Even as the attention spans continue to dwindle among people, the game of short-termism rules roost. It's very crucial for young investors to focus on amassing a large corpus or long-lasting income sources into their retired lives so that they remain independent and comfortable in the twilight years. The stress of working life is also pushing for an early retirement or quitting and with increased life spans, the retired years could even last longer than the productive years. Imagine, if one were to retire by 50 after working for about 25 years, the retired life could extend over 30years as the life expectancy crosses 80.

So, to endure a comfortable lifestyle in those under/unproductive years, one needs to be really taken care of their finances during the working years. An allocation to retirement is a must from the beginning of their careers. One must realize that the mandatory contributions towards provident fund or pension scheme (NPS) would be grossly insufficient and under prepares for the tough needs of retired life.

Sustained wealth is only created with long-term approach to investment with discipline. The best way to get on track for this is to start early when the burdens of life are limited. With time, as one engages in other obligations of children education or home ownership, there could be a toll on the contributions to the most critical phase of life. This is because the other needs seem imminent and emotional, leading to negligence to retirement contributions.

Starting early also helps boost the compounding, remember the power in the compounding formula lies in the number of years not the quantum of return. So, the longer the tenure, the higher the outcome even at a marginally lower rate of return per year. The other significant factor to be considered is the inflation which eats into the investor's returns.

Among all accessible avenues, equities have proven to beat the inflation by a distance in the long run. So, exposure to equity is a must irrespective of the risk profile, at least in the case of retirement planning. This is particularly turns potent for the younger generation who could get a head start in the initial years.

(The author is a co-founder of "Wealocity", a wealth management firm and could be reached at [email protected]. The views expressed are personal)