Studying bank deposits
By now, everyone should be clear about starting early on their financial planning. But what should the investment mix be? Image Credit: Supplied

In domains like financial advisory, the quality of service is often tied to the longevity of the service provider. Professionals with decades of experience often merit more credibility than younger counterparts. So, why retire specifically at, say, 65, and give it up when you’re top of the game?

This is the question eliciting considerable discussions. Encouraged by increasing life expectancies, medical breakthroughs, and non-conventional approaches, many are questioning conventional notions surrounding the retirement age.

Can we use the same “retirement” analogy to talk about a 65-year-old professional in the knowledge economy? We absolutely cannot. If you retire, you stop contributing to the economy. After that, you’re merely a consumer.

Rregardless of whether or not you want to retire, and when you want to retire, it is important that you base your decisions on your own terms.

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Get the planning mix right

The link between retirement and financial planning formed the basis for the latest webinar by the Continental Group. it touched upon the evolution of ‘retirement’ as a term, its financial implications, and key considerations in the planning process. In the audience poll on the advisable age to start retirement planning, 69 per cent stated 35-40 years, 26 per cent stated 40-45 years, and 3 per cent chose45 and above.

As opposed to a conventional process - where you determine how much wealth you need for retirement, secure it, and burn it backward - an early financial planning involves an accumulation phase, a consolidation phase, and the final phase of succession. Early financial planning isn’t about fixing a certain number for retirement.

It’s about incrementally increasing your savings and simultaneously hedging them against risks. Proponents of this approach often diversify their portfolios, invest in key considerations such as health and life insurance, and ensure their family’s financial security.

Balancing risk-reward

When you are in your 40s and envision your financial future, there are multiple considerations: Will my spouse have enough wealth if I fall ill? Do I want to live closer to my children when I’m old? Should I make a living will and edit it as per change in circumstances?

Even if it means putting away minuscule savings at a young age, it will be worth it — and more so if you diversify your holdings. Thematic equities with long-term growth prospects, bonds, and fixed income deposits are all good options, even if they mean longer lock-in periods and low-interest rates.

“The essence of diversification is to hedge against investment risks,” said Rickson D’Souza, an MDRT qualifier who holds a seat reserved for top 1 per cent financial advisors in the world.

“You can set short and long term targets, factor in inflation, and evaluate the risk you’re willing to take at every stage. Investments in stocks, bonds, and oil futures are attractive options, which can fetch high returns.

“But the pendulum swings both ways — higher reward also accompanies higher risk. So, as you age, it is advisable to reduce your exposure to volatile investment avenues, and shift instead to low-risk alternatives like fixed deposits.”

Income insurance

As often as not, insurance is viewed as discretionary spending. But they are an investment in a secure financial future. Most professionals continue to be under group coverage, which can be altered by employers.

If the professional is diagnosed with a serious illness or meets with an accident, and is unable to continue with employment, the group insurance will not suffice. To make matters worse, the chances of getting new insurance thereafter is hampered due to pre-existing condition.

In such circumstances, an existing personal health or disability income insurance can change the course of your financial future.

Insurance will help sustain financial obligations, while allowing full focus on recovery. Even life insurances make a compelling case as far as retirement financial planning is concerned. They are part of the financial legacy that one can leave behind in the event of an untimely demise, ensuring the financial security of the family.

You can later reallocate the life insurance investments into other avenues and new purposes. The pursuit of new purposes, as part of the retirement plan, was substantiated in another Continental Group audience poll. Around 78 per cent of the respondents said they want to enjoy life and experience things they put on hold because of their careers.

If you choose to retire from your profession, it is important to secure a new purpose. My advise? Worry less about retirement and concentrate more on retirement financial planning.