For most of us 'retirement' is a 10-letter word that conjures up images of sitting in the garden of your house with your partner for life, playing with the grandchildren, or hearing the sounds of their laughter as you read the morning news paper.

No more troubles in the world, no more effort to overcome the many obstacles that come in everyone's life, just the joy of knowing that you have arrived into this heavenly state of peaceful bliss - of financial nirvana.

The basic numbers

But, wait a minute, unless you have inherited a large some of money from your ancestors or recently won the Playwin lottery, that financial nirvana and emotional bliss you seek may not quite be in your grasp. Everything has a price tag to it, even happiness.

That is not to say that if you have money you will be happy. Rather, the way to look at it is to visualise what is likely to make you happy and then sit down with a pen, paper, and calculator and see if you can work towards paying for that happiness.

Maybe my goal in life, my retirement plans, consist of moving to Hardwar and staying in an ashram and meditating by the banks of the Ganga. Or maybe I would like to do all that and have a house in Pune to "escape" to and be with my friends and family. Maybe my retirement is the scene with the grandchildren I described above.

Obviously, the key to this financial equation of "how can I afford to retire" depends on what I wish to do when I retire. By the way, 'retirement' does not mean 'do nothing', but in a broad sense, it means stopping to actively seek money (by way of a routine job or regular business) to do things that you like on your pace and at your leisure.

Since there are still bills to be paid there will always be something to do which is dictated by someone else's time. (Try not paying MTNL's phone bill when you retire and see what happens!)

My retirement (Rs)	One-time cost	Cost of basic living, every year	Extras for fun, every year	Gifts for two grandchildren, every year	Total
Ashram in Hardwar	-	-	-	-	-
House for my life-partner and me in Pune	-	-	-	-	-
Hardwar + Pune	-	-	-	-	-

Now that you have worked out what you visualize your definition of happiness to be and put a price tag on it, make a list of the things you own today -- after deducting any loans you may have.

What am I worth today? (Rs)	Value, today	Any loans?	This is my wealth
Flat	-	-	-
Car	-	-	-
Jewellery	-	-	-
Bank deposits	-	-	-
Mutual Funds	-	-	-
Life Insurance Policy	-	-	-
Shares	-	-	-
Fixed Deposits	-	-	-
Business	-	-	-

Now look hard at the two tables, because a lot of your major decisions in life -- and the things you do for your children -- will be determined by what you have just put down.

For example, if that garden scene with grandchildren is what you want, it is going to cost you to buy that house in addition to the maintenance cost year on year. If your wealth is less than what you had planned to save, then clearly there is a mismatch.

Something needs to be done to pull your wealth up higher and/or reduce your expectations of your retired life (maybe a two-bedroom flat in Pune will do, not a house with a garden) to make the two meet in happy equilibrium.

But let's assume that they do not meet in happy equilibrium and your revised scenario of happiness is still more than what you currently have. There is a chance that, if you plan wisely for the next few years of your working life, you may still be able to achieve the happy, retired life you desire.

"In the good old days": time is money

We all know that, over time, things get expensive. How many times have you heard your parents tell you "when we first moved to Mumbai, a flat in Juhu cost only Rs 1 million" or "tomatoes used to cost Rs 8/kg."

Over time, most things generally cost more to buy. This natural tendency for an increase in the prices of products is called inflation.

The good thing is that there are many things that you can put your savings into which, over time, generally earn you money at a rate higher than inflation. For example, if your parents had bought a flat in Juhu for Rs 1 million in 1977, it would be worth probably Rs 10 million today. However, if they had bought Rs 1 million worth of shares in Bajaj Auto in 1977, the shares would be worth Rs 100 million today -- they could have bought eight flats today even after paying taxes on their huge profits!

Or even if money was kept in a fixed deposit with Tata Steel earning an average 8 per cent interest, over the years, that money grows into something of greater value.

Clearly, there is another way to 'make' money and your job is not the only way to plan for your retirement. The thing to do is to save. To plan for your retirement and to find a way to try and bridge that gap between your cost of 'happiness' and what you have today as your wealth.

The younger you are, the more time you have to get to retirement. The negative of being young, though, is that you have more expenses up front to start your life. With your first job, your income is not that high and you will probably buy your first TV, your first stereo, your first motorcycle -- all this costs money and leaves you less to save.

But as you get older, you can save more of your income (you already have the TV, flat, vehicle, and you have paid for the children's education) -- and your income is growing as you get more experience and rewarded at your work.

But before you rush to sell your family jewelry and buy stocks remember that there are many "duds" out there, too and a Rs 10,000 investment in them even as recently as 1999 would be worth nothing today.

Investing in shares, mutual funds, or even fixed deposits and property is risky business and you must recognize that risk before you jump headlong into a dream world.

Not easy: requires discipline -- and common sense

We all pride ourselves on how smart we are and yet we make the most obvious mistakes and blunders -- unfortunately after we have made them and cannot recover our lost money!

Isn't it strange that we spend so much studying and getting a solid education so that we can get a good job and earn money but, when it comes to saving what we have earned after much trouble, we throw it away "because my friend told me to do it"? Don't we owe it to ourselves to do some work and some study of what we are investing in.

In my opinion, you don't need to be an expert to make money, but you need patience, a discipline, and maybe some honest, unbiased opinions. If you still don't feel comfortable investing on your own, hire someone to do it for you -- but make sure you share your retirement goals and current financial situation with them.

And do not take any advice for granted: question, understand, challenge, make notes, check for contradictions in advice or sudden changes and do not be shy to ask 'why.' It is your money and you have a right to know. Let the person you hire know that you are on top of things and not afraid to monitor the advice you get.

To summarise, the key to planning for your retirement is:

1. To quantify your definition of retirement and see what your version of happiness will cost.
   
2. To make a list of what you own so you recognize the gap between reality and your dreams.
   
3. To quantify that gap and see how a change in investing your current wealth can get you closer to your financial goals.
   
4. To recognize that there is a risk in every investment you make and to know that there will be months, or even years, when some of your investments are not working out the way they were supposed to.
   
5. To constantly review (not necessarily always change) where and how you have invested and to stay invested in a mix of different assets - and to recognize that the only person who definitely makes money each time you churn your investment mix is the financial intermediary!
   
6. If you do not wish to handle the financial investments on your own, hire someone to do it for you -- and be willing to pay for the service; most of us are born with something in our body that needs fixing and we happily pay a doctor to try and fix it, but we hesitate to pay someone to help fix the financial mismatch most of us are born with.
   
7. To constantly update and review your retirement plans and your current financial position, and, if you have hired someone to do it for you, constantly monitoring their work and results.

Life is a wonderful journey with many ups and downs that we all face and some point in time. But there can be few joys greater than holding your children next to you knowing that you have started to plan for their future and that, one day, the grandchildren could be running around in the garden while you look back in satisfaction knowing that every journey has a wonderful end.

*1 million = 10 lakh

This article forms a part of "Money Simplified -- Retirement Planning -- Where to invest your money?" a free-to-download online guide from Personalfn. To download the entire guide, click here.