As mathematicians keep reminding us constantly, a whole is a sum of parts, the latter being one of those profound and immutable laws that derive its strengths from nature itself. Numerous aspects of the universe depend completely on this simple yet powerful dictum, which manifests itself in many ways in all sorts of places. A good retirement plan, as it so happens, is one of them. It is just a sum of parts, no more and no less.

Let us, right at this very moment, pause to think about the “parts” an individual income-earner may consider while working out his retirement plan. What constitutes these parts? In which order would these be laid out? Which are the most important parts, and which ones are not? These questions, and a number of others, would follow naturally.

In order to frame some answers let us jump right to the point where an individual – imagine him as a young person, perhaps one who has just started to earn independently – has embarked on a savings programme. He then graduates and makes a few investments on his own, perhaps with the help of some professional intermediaries and advisors. Next, as time progresses, he moves across to the point when some of his investments have to be liquidated.

So we have three distinct phases that make up an individual’s journey – savings, investments and withdrawals. Let us write them vertically (using slightly different words) for better a visual effect:

• Saving

• Investing

• Drawing

The first, saving, is where a great many challenges must be overcome. Typically, an individual gets his early start with some parental support, although one has to be really lucky in order to get more than a gentle push on this front. However, let us for the sake of convenience forget all about this, and instead focus on the fact that an early-stage income earner is just beginning to handle money. And that, dear reader, is a mammoth task indeed.

A young saver, for all you know, is probably well-acquainted with savings bank accounts. The latter is, for many of us, is the veritable first step. This is where it all begins, and a Rs 10,000 initial investment in a bank account is far too common these days. Perhaps it comes with a debit card and cheque book. The perks of a basic account, complete with charges nonetheless.

As the saver graduates to the next level, investments emerge as a matter of personal choice. This, of course, is a compelling range. It is a moveable feast –equity funds to direct stocks, fixed deposits to debt funds, direct commodities to allocations through commodity brokers. Throw in the other bits and pieces – gold, real estate, privately-managed investments – and life for the individual concerned can become a terrific challenge indeed!

The next stage (and the individual now has salt-and-pepper hair) concerns withdrawals. Now that the machine has been oiled during all these years, it must be used for productive purposes. It must yield results. And what are these results in the case of a financial plan aimed at retirement? In a word, the answer is withdrawal.

Withdrawals, I must mention, may well be driven by absolute necessities. As one approached retirement, a number of challenges may yet arrive. A child who is dependent has to be sent to an expensive educational institute. A business that one’s spouse is about to start has to be funded partially. A marriage in the family or an operation has to be provided for.

Well, the point is, all these requirements are fairly commonplace. While a retirement plan may not strictly cover (or, include) these elements specifically, the need to finance the same cannot be wished away. A typical withdrawal, therefore, is a one-time action. It begins and ends within a specific time range, and there is usually no repetition. At any rate, a withdrawal depletes a retirement corpus.

While we are on the subject of retirement corpus, let me state unequivocally that this is of critical significance. All the three steps a retiree goes through are aimed at constructing, nurturing and fine-tuning the corpus. To use raw and crude words, the bigger the corpus, the more secured the retiree can feel. Or at least theoretically. We will discuss ways to boost one’s retirement corpus on some other day.

The author is a Director, Wishlist Capital Advisors

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