InvestorQ : What is the difference between financial planning for retirement and financial planning during retirement? Which one is the right approach?
Anushri Vasa made post

What is the difference between financial planning for retirement and financial planning during retirement? Which one is the right approach?

Answer
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Khushi Patel answered.
5 months ago


Well, the difference is huge. When you do financial planning for retirement:
  1. You are still working.
  2. There isn’t any withdrawal from your retirement corpus.
  3. Volatility does not bother you much and could be tolerated from time to time.
  4. Rupee Cost Averaging works in your favor if the market moves up in the long-term.
  5. Lower asset prices during market corrections won’t be a problem if things went back to normal by the time you retire.
When you do financial planning during retirement:
  • You will withdraw from your portfolio to meet your expenses.
  • You cannot make any fresh investments, as there would be less income.
  • You might not be able to handle the volatility in the market.
  • Lower asset prices during market corrections could destroy the entire portfolio.
  • You are subject to the sequence of returns risk.
Now the question arises what is better?
While making financial planning during retirement, if your portfolio faces adverse market conditions in the earlier years of your investment, you would end up being in loss and it won’t last for the planned term. Consequently, you would end up withdrawing the portfolio before the desired term and the losses would become permanent. By the time a good sequence of returns would come around, your corpus is already half-withdrawn and now you’ll get returns on the decreased corpus.
On the contrary, if you encountered a bad sequence of returns while you are planning for retirement, the original corpus would be in place, and hence, when the right sequence of returns would arise, the corpus would be restored and lost (if any) would be nominal. So, you will end up with a higher corpus. You can also make adjustments to your portfolio while you are still investing without facing too much risk.
Therefore, it is better to plan early for your retirement.