Retirement is probably the most important and the toughest goal for a young person. It’s important because the likelihood of a youngster living beyond 100 years of age is very high and they mostly will not have any guaranteed pension available. It’s tough because it is extremely difficult in the late twenties and early thirties to visualise old age and retirement.

As advisors, it is our job to support them in this endeavour to make a meaningful contribution to their future welfare, while balancing the current demands on their time and money. There are two broad areas of retirement planning for younger clients- first is to establish the need and importance of the goal with correct expectations and second is to set-up a framework for the numbers.

Typically, a younger client will have several short to medium term goals that would be crying out for attention. These would include buying a house, supporting parents, starting their own family and the associated expenses of child birth and child’s early education. While these would be more of responsibilities, there would also be aspiration and lifestyle goals that would come in the form of socialising, holidays and creating a beautiful home.

In light of these demands, to inspire the client to make contribution to a retirement corpus can be a daunting task. Hence, it becomes imperative to prioritise things and this requires a detailed discussion with clients. Conversations can range from buy v/s rent a house, possible budget for buying a suitable house if that is the decision, to the kind of schooling they would like their child to go for, single earner scenario- in case one among the couple wishes to take a sabbatical at some point in time. This entire discussion is happening when one/both of them are earning- what happens when they have no income coming from their jobs/profession? That could be a good point to bring in the importance of retirement planning. These conversations can help clients look at things in the right perspective and accordingly decide on their priorities.

Once the goals and priorities are decided, it is time to come to the assumptions to be used in the plan. Since retirement is a lifelong goal, assumptions are just that – assumptions. Things will change for sure. The financial plan document is only the first step to achieving the goal; ongoing monitoring and course corrections will be needed on a regular basis. This needs to be understood very clearly by the client, as just having the plan created is going to get them nowhere. The plan can give an idea of estimated savings target for them to achieve their goals. Several things can change the plan for bad or good- a job loss, a disability, industry disruption, redundancy, and now one more-a pandemic, unexpected inheritance, windfall gains etc. So, it is necessary to set-up correct expectations- that we are creating a roadmap and we should be prepared to make corrections and detours as required along the way.

The typical challenges in terms of the numbers to be used for creating a retirement goal plan for a younger client are as follows:

• Till what age do we create the plan for?

We create plans till the age of 90. Some clients say that they are unlikely to live so long, however it is better to be conservative and provide for surpluses after life instead of letting the corpus deplete during the lifetime. This might create some stretching of resources in terms of higher savings and investments required.

• How much corpus would be required?

This would depend on the expected expenses and the risk profile of the client. A client with large expenses and conservative risk profile will need a larger corpus as compared to another who has modest expenses and a balanced risk profile.

• What assumptions do we take in terms of inflation, income increase etc?

Expense assumptions: The expenses in younger age can be significantly different from the retirement expenses. One way to overcome this dilemma is to consider the total current expenses minus the expenses related to children with a small inflation factor added to it for lifestyle. Elimination of education and allied expenses is likely to be compensated by the lifestyle inflation and other expenses likely to come up in retirement related to healthcare, insurance, leisure travel etc.

Income growth assumptions: This can be based on industry level expectations in conjunction with personal position related to educational qualification, experience, performance etc. It is better to take a conservative figure for growth. Also, it would help to create scenarios for different ages ranging from 55-65 years, as redundancy is very plausible, at the same time longer working years might also work out in some different area.

It is financial planning that is more important than the financial plan. The same goes for retirement, especially because that goal never ends, unlike other goals that have a finite timeline. It is definitely not an easy goal to tackle. However, like someone said, “Sometimes you can’t see the road ahead, but as you keep going, one step at a time, things get clearer. Stay the course and the fog of life dissipates”

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