Kickstart your retirement savings in 2021

The standard retirement advice is to save as much as you can and automate your savings. But what if the problem runs deeper? What if you just cannot wrap your mind around the concept of retirement?

Well, then I hope to address you in this article. Attempt to answer these three questions, and you will surely get some sort of a roadmap to embark upon.

1. What is it that you will be retiring from, and retiring to?

Do you plan to quit working altogether and indulge in gardening, cooking, traveling and volunteering for a cause you feel passionate about? Or is a partial retirement more your cup of tea? One where you work as a consultant or take up projects as and when you are up to it.

Traditionally, retirement took place when we were pushed off the demographic cliff (company policy forces you to retire by the age of 58, for example). Technically, it is the day you leave your job or hand over the reins of your business to the next in line. You could do so at a much younger age if you so desire.

Whatever be the reason, retirement is not a number (the amount of funds you have accumulated), not an age (you could retire anytime), and not an event (it’s the starting of a new phase in your life). Neither is it a destination, and certainly not a “happily ever after” reality.

You have to plan through it. Building up a retirement corpus is just one aspect. Figuring out your life and how you plan to spend your time is the other. It would be a shame if you attain financial independence only to be confronted by an existential crisis.

2. What does financial independence mean for you?

Financial independence and retirement are not necessarily linked at the hip. They exist independently.

To retire, you must be financially independent. Though I do know of individuals who are dependent on their children for support. Not a very desirable situation, but that is the unfortunate reality for many. On the other hand, you can be financially independent and choose not to retire. Plenty fall into this category.

I am not going to give any generalised suggestions with regards to a retirement corpus. It is way too personal and a myriad of factors need to be accounted for. Sources of income after retirement. Pension. Single or married. Living in a joint family or nuclear. Risk capability. Lifestyle. Debt. Age.

That said, financial independence is not just a number. It is not solely about having money to cover all your expenses. It is about psychological independence too. What is the corpus amount that will help you overcome your insecurity? What is the cash flow you desire that will make you feel taken care of? Your magic number may be $580,000, but for someone of the identical age and similar social status, it could be $1 million.

You may need to take the help of a financial adviser to get clarity on this front.

3. What must you do if you are not motivated to save?

David Blanchett, head of retirement research at Morningstar, suggests that you work on your overall financial plan if the motivation to save for retirement does not exist. If retirement doesn’t do it for you, find something else that does.

He suggests paying down debt—credit card, student loan, home loan, personal loan and vehicle loan. “Retirement is not always easy to save for because it can be so far off in the future. Paying down debt might actually make more sense than saving for retirement, depending on the interest rate of the loan and the return on your investments,” says Blanchett.

Sarah Newcomb, director of behavioural science at Morningstar, explains that it is human nature to care more about immediate issues than something that feels far away, like retirement.

Newcomb recommends using visualization strategies. Think about what your life in retirement looks like. Don’t keep it vague. Force detail into the picture. What will your home look like? How do you see your travel plans? What sort of social life do you envisage? Doing this will make the far-away future feel closer and provoke you into action.

Author and financial expert Ramit Sethi once mentioned about a dinner conversation with a man in his 60s. Sethi asked him what advice he would give his younger 20-something self today. The answer was a very conventional, “save more”. Aware of this individual’s financial situation, which was pretty sturdy, Sethi prodded him a bit more. He asked him what he would have done with the extra money. The man had no answer.

Everyone knows they must save more, but few know for what. To kickstart your retirement savings, you must have a why, not some nebulous goal.

Try to fall in love with your vision of retirement. How you think about it can potentially make a big difference to how you go about saving for it.

For example, if you want to relocate to Bali and live in a 300sq m villa, do some research on how much that would cost. If it is out of your reach, don’t let that freeze you into inaction. If you are non-negotiable on the location, be flexible with the accommodation and look at a smaller home. If you are non-negotiable on the villa, compromise on the location. The point I am making is not to think only in extremes, be flexible.

As long as retirement is a vague reality, you won’t be propelled to save. Deliberately visualising it will give you the motivation you currently lack.

I hope this prompts you to start saving for retirement in 2021!

 See also Morningstar Guide to International Investing