NEW DELHI: Sachin Arora is a 34-year-old Delhi-based trader who has been hit by multiple medical ailments at the peak of his career, which impaired his vision as well as mobility. “I never thought this could happen to me. Maybe, I will recover and get back to my life, but frankly, I have already started living off my retirement planning,” said Arora. The millennial is a classic example of someone who did his retirement planning but forgot to add an ‘unforeseen’ coupon to the plan.
“I never had a Plan B. I followed plan A, based on legendary author and investor Charles Ellis’ formula — start saving early, diversify your savings plan to get the safest return at the best rate. I thought this would let me retire happily at the age of 60,” said Arora.
Arora, like most people, had never imagined that health, technological obsolescence or disruptive innovations could end businesses or income streams. However, analysts say that with the fourth industrial revolution that involves bringing in Artificial Intelligence, robotisation, etc, into the workplace; and with rising health issues impacting the millennials, a Plan B that could allow the individual to move towards an early retirement, is a must.
In the 1980s, the decade when the millennials were coming into the world, however, the International Association for the Study of Insurance Economics, conducted a research called the Four Pillars. It said there were three existent pillars for funding pensions: 1) a compulsory, pay-as-you-go, state or state-guaranteed pension scheme; 2) a supplementary occupational pension and 3) personal savings in a variety of financial instruments. The paper promoted the new idea of a ‘fourth pillar’, a flexible extension of work-life, to earn extra savings to supplement the other three.
This was done to take care of the longer life expectancy of the millennial population and also unforeseen emergencies in the backdrop of the shrinking ‘Welfare State’. In Europe, where the concept of Welfare State — the State looks after the unemployed, elderly and disadvantaged — emerged, it was a revolutionary idea. But as the State’s ability to support a larger and longer living population of old people diminished, the ‘fourth pillar’ was seen necessary.
“Everyone can’t find ways to earn the extra bucks by finding a second/part-time job. Our advice for them is, increase your rate of savings to take care of unforeseen circumstances,” said Saumitra Mundle, an independent wealth advisor. All retirement planners have a retirement calculator, which allows a person to decide on how much to save annually to earn a certain income at the age at which he wishes to retire.
Mundle says that to really plan ahead, one must work out several options of retiring at the age 35, 45, 50 and 60; work out savings rates and then choose one or the other plan. “By choosing an early retirement plan, an individual, if he or she retires at 60, can have a better standard of living. In case things go wrong and he or she retires early, then this is the Plan B,” he says.
Besides part-time jobs, rental incomes, and in the Indian context, trading on stock, money and commodity markets, have become a popular way of supplementing incomes. However, wealth advisors warn that trading can also cause wealth erosion. “It is better to invest time and money in safer avenues to earn that extra savings or else to simply buckle up and save more,” Mundle said.