For 47-year-old Vikas Yadav, a Delhi-based chartered accountant, his passion drives him to work every day. While any other working individual would be planning for retirement, which is only a decade away, independent professionals like Yadav have the option of continuing to work even after the age of 58 or 60, which is the retirement age for most government and corporate jobs. “I have no retirement age in mind. I will continue to work for as long as my body permits," said Yadav.
Professionals like doctors, dentists, chartered accountants, lawyers and architects who set up an individual practice often continue to work beyond the age of 60 and have the option of working for as long as they want. As they don’t have a retirement target to meet by a specific age, they tend to ignore the importance of building a retirement corpus. But life can be unpredictable, and plans can easily change by the time you reach retirement age. The absence of proper planning in such a situation can seriously dent your plans. Even if you don’t have to retire at 60, it is important to have a retirement age in mind. Once that deadline is set, build towards the goal and start investing accordingly. So how should independent professionals approach retirement and what circumstances should they watch out for?
Change is inevitable
For Abhishek Gakhar (30), who runs a dental clinic along with his wife Vaishali Gakhar (29) in New Delhi, retirement is something that he is not worried about. Gakhar is confident that he can rely on a passive income stream even after retiring by training fellow dental surgeons and consulting at different clinics. “When I am closer to my retirement age, I will be more experienced in my profession and that will easily help fill any gap to build my retirement corpus," he said.
But professionals need to also plan for uncertainties, especially unanticipated medical emergencies that can curtail one’s plans to work for a longer tenure and also dent your finances if you are not financially prepared for it. Any critical illness can significantly impact one’s ability to work for longer years and one should take that into account while planning for retirement.
As you age, your plans to work for longer might also change. “One cannot afford to be flexible with their retirement goal as health and other factors would play a vital role in determining the abilities of such professionals," said Dilshad Billimoria, director, Dilzer Consultants Pvt. Ltd, a financial planning firm. She added that if one has the ability to work or has some other reliable supplementary income, one can be slightly flexible in creating a retirement corpus. Yadav, who doesn’t have a corpus ready, plans to rely on the rental income from properties he has invested in and dip into the fixed deposits, should a need arise.
While approaching retirement, the first thing that independent professionals should take into account is how their family will be taken care of in their absence. “It is always better to be prepared for the worst situation, simply because one doesn’t know what their circumstances would be like in the future," said Mrin Agarwal, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra. Yadav and Gakhar both understand this and have adequate life insurance to take care of their family, should something happen to them.
As independent professionals don’t have an employer health cover, they should have adequate health insurance to protect them and their family in case of a medical emergency, a fact that Gakhar understand well by virtue of his profession. “I know the inside picture of any medical conditions and for this reason have taken a medical health cover policy for my whole family," said Gakhar. Yadav, too, has bought a family floater plan as well as a top up to take care of medical expenses. “Independent professionals need to get a health cover (preferably a family floater) early on. They should have a life insurance cover for a longer period, say up to 70 years," said Agarwal.
Salaried individuals have a mandatory employees’ provident fund (EPF) that they regularly contribute to and can rely on to build a part of their retirement corpus. Independent professionals, however, might not have such an option and should plan accordingly. “Unlike people in the organized sector, who are salaried employees, professionals like doctors and lawyers do not fall under an organized retirement fund like EPF and NPS (National Pension System). Therefore, it is imperative that they start building a corpus for their retirement as early as possible," said Billimoria.
While the retirement age might be unclear in an independent professional’s mind, what needs to be clear is that it would be imperative for them to retire at a certain age and should start building towards that retirement corpus very early in life in order to maintain the same lifestyle. “The retirement corpus should be based on the future value calculation of current living expenses, inflated to the life expectancy of the individual and the spouse. This will ensure that both the breadwinner and their spouse are covered if the corpus goal is met," said Billimoria. While Yadav doesn’t have a corpus in mind, he has investments in mutual funds and NPS as part of his retirement portfolio.
Another thing to consider is how they would like to spend their time after retirement. Gakhar wishes to settle in Goa and be more involved in social work by conducting dental and social awareness camps for the less privileged. While he hasn’t started building towards this goal, he hopes to carry his work to the new city and keep a passive income stream open. Independent professionals can invest in the same financial products that salaried individuals use, and continue to build their corpus. “They can invest in mutual funds, public provident fund, NPS, annuity products and senior citizen bonds to build the retirement portfolio," said Billimoria.
While independent professionals have the luxury of working for as long as they please, they should not neglect factors like health, which could undermine their wish to work longer. They should build a sufficient corpus to retire at a reasonable age rather than forcing themselves to work the extra years.