Why we need to forget about “pension after retirement” & focus on “financial freedom” – Paisa Vaisa Podcast Part 1

Last Updated on December 29, 2021 at 11:47 am

I was invited as a guest on the Paisa Vaisa Podcast hosted by Anupam Gupta, a CA and equity research consultant. The podcast was co-hosted by CFP Anees Rao. In the first part, we discuss what exactly is financial freedom, why it is for everyone and why we need to replace conventional notions of retirement and pension with financial freedom.

In this post, I have added explanatory notes for the podcast to help beginners. So share this with your colleagues who have not done anything for their retirement. You can also download two free ebooks to plan your financial freedom below.

So this is the link to the podcast: Paisa Vaisa Ep. 137: Financial Freedom – Part 1. There are two more parts where we explore fin freedom with examples and simple thumb rules.

Suppose you receive a letter from your employer that your salary will remain the same as the present and will not increase in future? What would your first thoughts be? Will you continue to work for the same company? Why?

You would instantly recognise that with the same salary, you will find it hard sooner or later to manage your day to day expenses, fund your near and future goals and dreams. Every day, we see our simple expenses like food, water, transport, basic clothing etc increase. We call it inflation.

We recognise this increase, shake our heads in disappointment that we need to spend more and move on. Why? Because, we earning today – either as a salary or as an income (business, rent etc). We feel that the situation “is manageable” as our income will gradually increase.

Hang on a second. We cannot keep working forever! Even if we want to, we may not be able to, due to poor health.  How would we manage our daily expenses then? Many people assume that what they invest in the EPF or NPS or PPF will be enough for them to a pension at that stage.

But a pension will not increase like our salaries do*. Our expenses will not stop increasing year after year because we have stopped working.  By the way, most pensions that people draw are much lower than their last drawn pay. So how will such a constant pension be enough to handle expenses after retirement?

* Well, there is a plan where the pension increases at 3% a year but the interest rate would be much lower! So don’t get any ideas.

Simple common sense immediately tells you that unless a retiree curtails expenses, a pension will not help. This is where the idea of financial freedom comes in – it is the ability to handle an increase in expenses (due to inflation or unexpected) when we cannot or do not want to work for a living. Simple common sense also tells you that financial freedom is for everyone, not just for those who wish to retire early.

At this point, someone somewhere will be thinking, “did our parent not manage with pensions?”, “all this talk about inflation is nonsense!”. Well, good luck. Our parents did not have cable, internet and smarphones for most of their lives. If we remove these, they will happily find ways to entertain themselves. Read more: Caring for elderly parents: An emotional and financial crisis

For us, the internet is vital as food and water. The smartphone is our best friend. So our needs are very different and therefore we need to think differently and act differently.  No more pension business for us. We cannot live off an interest. We need a decently sized corpus, we need to invest it right, we need to invest it safely and derive an income on our own. To be continued ….

Hey, don’t forget to listen to the podcast: Paisa Vaisa Ep. 137: Financial Freedom – Part 1.

Download free E-book: How to retire early in India

E-book: Post-retirement income generation strategies

If you are a beginner, yet to get the basics right, then start with: Download Re-assemble e-book: Step by step guide to the basics of money management