Retirement Planning Can Succeed Even Without Specific Products, Using Multiple Options

Retirement planning is an integral part of the financial planning process for an individual. It has high importance because of the nature of the process and the fact that the amount after retirement has to last for the remainder of the life of the individual.

Many people believe that having a specific retirement product in the portfolio is enough to take care of the entire process but the reality is something different.

Multiple investment options might be a better way to achieve the large goal that is present under this area. Here is how this can be done for any individual who is planning their retirement.

The main feature of any investment that one is planning to make for their retirement is that this has to have a long term outlook. This long term will stretch for decades so it is not just a few years that the investor has to think about but it is far longer.

The period after retirement can itself be 25 to 30 years given the longer life span of people so all the investments have to be directed in this specific fashion. The investments should be such that short term changes or impact should not disrupt the whole process but this has resilience for a longer time frame so that it remains valid over the entire time frame.

There are a lot of people who prefer to stick to a single asset class when it comes to their retirement planning especially as they come closer to retirement because they believe that they cannot take any risk in their portfolio at this point of time.

Many others do the exact opposite but for a proper approach it is important for an individual to make use of a mixture of debt and equity.

The debt component will provide the stability in the portfolio while the equity component can provide the growth over a period of time. This is vital because with such a long time frame available for investment there has to be returns that are more than the rate of inflation which cannot be ensured unless there is an exposure to equity.

The investor should not rely on a single option for the purpose of their retirement planning. The reason for this is simple. This is a large goal where the amount required is very high so it does not make sense to rely on a single choice in terms of instrument. This would lead to a concentration of risk and if something goes wrong or changes with respect to the investment or a particular asset class then the entire retirement plan would be in danger. The selection of multiple avenues will also ensure that there are different features that are built into the entire investment plan and that they are able to take care of various types of risk.

One of the biggest misconceptions with respect to retirement planning is that unless you have a specific retirement option the goal is not being met.

This is not correct because the ultimate goal is to have a specific exposure in the portfolio. This need not be met just by the use of specific retirement products but can be achieved even if there is a similar exposure using different products that are normally used by investors.

Thus the goal can also be achieved without a retirement focused product but at the same time it is important that there is a proper allocation made to the goal and that the amount for this is separated so that there is no mixture of the money with other goals.

Arnav Pandya is founder of Moneyeduschool.