{"id":3252,"date":"2024-03-14T04:54:01","date_gmt":"2024-03-14T04:54:01","guid":{"rendered":"https:\/\/1finance.co.in\/magazine\/?post_type=blog&p=3252"},"modified":"2025-02-28T18:33:56","modified_gmt":"2025-02-28T13:03:56","slug":"why-a-typical-goal-based-financial-planning-is-not-sufficient-for-your-retirement","status":"publish","type":"blog","link":"https:\/\/1finance.co.in\/1f-dashboard\/blog\/why-a-typical-goal-based-financial-planning-is-not-sufficient-for-your-retirement\/","title":{"rendered":"Why Typical Goal-Based Financial Planning Is Not Sufficient For Your Retirement"},"content":{"rendered":"

Imagine that it is the start of a slow, stress-free weekend where you’re sipping your morning beverage with your life partner and discussing your future. You discuss the lives that both your parents are currently living and eventually, the conversation turns towards your existing lifestyle, your long-term Financial planning, and the kind of life you want to live after both of your retirement.<\/span><\/p>\n

You decide that you will prepare a goal-based financial plan for all your life\u2019s financial goals (including retirement) and that you will retire at the age of 60 years. By doing your <\/span>retirement corpus<\/span><\/a> calculations you estimate that you\u2019ll need to accumulate nearly \u20b9 6 crores over the next 30 years to live a comfortable lifestyle of your choice.<\/span><\/p>\n

By calculating backward from that financial goal you estimate that you\u2019ll have to invest nearly \u20b9 17,000 every month for the next 30 years in an instrument that can deliver 12% returns to reach that goal.<\/span><\/p>\n

Based on your and your spouse\u2019s existing monthly salaries, you seem to have your financial plan for retirement figured out because you have the capacity to save that \u20b9 17,000 monthly and accumulate that corpus of \u20b9 6 crores by your retirement year.<\/span><\/p>\n

Now ask yourself the following questions:<\/span><\/p>\n

– Would you need that \u20b9 6 crore all at once in 30 years?<\/span><\/p>\n

– What would be the taxes associated with it?<\/span><\/p>\n

– Where would you invest that lump sum amount to generate enough passive income while ensuring that the corpus lasts till your last years?<\/span><\/p>\n

– Will that generate enough cash flow year after year for you and your dependents to live the lifestyle you desire?<\/span><\/p>\n

– What if an unforeseen expense (like treatment for a critical illness) arises and severely depletes your corpus?<\/span><\/p>\n

As you would have realised by now, estimating the retirement corpus and the monthly investment needed to achieve that by your retirement year is just the beginning of your retirement planning process; there are various other factors to consider.<\/span><\/p>\n

Before we jump into those let\u2019s understand and contrast goal planning and retirement planning a bit more.<\/span><\/p>\n

What is goal-based financial planning?<\/h2>\n

It is a well-known financial planning technique that relies on putting together a timeline of your financial goals, and based on the time remaining for each of those goals estimating the total monthly investments that would be required to achieve them and assigning a financial instrument for each goal.<\/span><\/p>\n

Although these financial planning goals differ from individual to individual, there are some common financial goals that we Indians aspire for, like buying a home, kids\u2019 education, kids\u2019 marriage, and retirement. When planning for the fulfilment of these goals, you need to decide how far along the financial risk spectrum are you willing to go to achieve them.<\/span><\/p>\n

Generally speaking, the more a goal is far away the more the amount of risk you can take with your money. Like, if your kid\u2019s higher education is around 15 years out then you might choose equity mutual funds as your preferred financial instrument. And if you\u2019re planning to purchase a home in 1 year then you might do a fixed deposit or park your money in a liquid debt fund.<\/span><\/p>\n

So, your basic goal plan for those two goals would look like \u2013<\/span><\/p>\n