How to build a DREAM retirement fund

Retirement in the general terms refer to the end of working life of an individual, called in other words in organised sector as superannuation. While planning for a happy retirement is a necessary part of the financial life of an individual, there are two phases involved in the process.

1. Accumulation phase

2. Withdrawal phase

Accumulation phase is the period in the working life of the individual when s/he is working and regular contributions are being made towards the retirement corpus. This should be done as per the strategy charted out in a well-drafted financial plan in consultation with a financial planner.

Though a lot of importance is given to accumulation phase, managing the withdrawals in such a way that the individual does not outlast the corpus is equally important. Planning for the same should be done from the stage of financial plan construction only, however scope for correction and adjustments can be provided as the period of forecasting and assumptions are very long.

There are retirement products available in the market in form of annuities of insurance companies, which are designed in such a way that there is a regular periodic payment for the holder instead of one lump sum payment. These annuity plans may be good option, the only shortfall being that the investments and withdrawals are not customised and are not related to the replacement ratio.

Government of India has taken cognisance of the fact with New Pension System coming up; this system also has a mandatory requirement of purchasing an annuity from 60 per cent of the accumulated corpus at the time of withdrawal. Thus it becomes clear that withdrawal management is important and should be done in such a way that there is a steady flow of income to the individual to provide for expenses during the retirement period.

It is challenging to customise the corpus withdrawal schedule for every individual at the institutional level and thus the onus to manage the income from corpus lies on the individual herself/himself and it should be done in consultation with an expert like a certified financial professional, who is equipped to manage the corpus in terms of longevity and other factors like return optimisation and tax efficiency.