Important Keys for Retirement Planning

Whenever I put forward the question as to how planned their retirement is, people hardly come up with an answer. Even those who choose to answer, are not sure whether their petty savings will suffice their ever-expanding needs. A major lot of people in India, who are currently part of the work-force, are highly optimistic that their children will take care of them financially. So planning for their retirement becomes the least of their concerns. But the latest study has come up with a startling fact. It states that only 3 out of every 10 individuals are capable of supporting their old age parents.

 So why take a risk? Even the smallest of creatures like ants and bees work hard to save food so that it could meet its future needs. So why not choose your finances and investments to support you when you retire? 

If you have made up your mind then follow the 5 key points that everyone will have to bear while constructing a retirement portfolio.

Jot it down 

So take your time and write down all your current expenses. It could be your EMI, loans, or your child’s education. Have a clear picture of all your current expenditures. Because assessing the current situation will help you understand what to expect in the future and how to kick start planning for it. In the future, you will be having more or less the same needs or basic demands. So your life today will help you get a vague picture of your needs 10 or 20 years from now. After that, find out all your savings and investments. Break your piggy bank and count down all your pennies. If you are a government employee then you will be having a pension plan already in place in the forms NPS, etc. So make sure you understand the returns and all other important details about it.  In short, list down all your cash inflows, outflows, assets, and liabilities.  

Imagine your future 

A sheep with a plan is powerful than a lion without one. Now it is time to answer the most essential question, how much will you need? It can be any figure. With a proper and well-executed plan, you can achieve any or all of your financial goals. If you want to spend your retirement relaxing in the Bahamas, then include it into your future expenses as well. As you plan your retirement you must take inflation into account as well. In simple words, if you need 10,00,000 today then you will be needing 30 to 50 lakhs 10 years down the line. You can calculate this in no time using a spreadsheet. Or simply make use of the Finology’s retirement calculator to have an estimate of the corpus you will be requiring while retirement. 

Link to calculator: Retirement Planning Calculator

Start early and start big 

It is always better to start early. Say you are starting at your 20's. In such a case, you can direct more money into your savings. This cannot be done when you are in your 30’s. Because in your 30’s you will have a lot of responsibilities and financial needs that must be addressed to. For eg, say you are 26 years and unmarried. So you can put a major portion of your income into investments. A person who is married and has children will have their priorities such as a child's education, daily expenses, etc. So the portion he will be able to save will be comparatively less.  It is also important that you understand the period you will be able to invest in. Don’t frown away from taking risks. You must take such risks which are essential for your portfolio. But also make sure that you analyze and stay within your risk appetite. You don’t have to save thousands. Even a 3000 monthly can make a huge difference. Never fail to follow the golden rule. The younger you are the more allocation is to be made to equity-based investments. As you are nearing retirement make sure you increase your debt holdings. Further, make use of various fund modules like SIP, SWP, etc. Even your withdrawal rate is of utmost importance. 

Strengthen your medical fund 

There is no doubt that a lot of new additions will take place in your expenses column, but one major expense which you will have to allocate a lot of funds will be towards health and medical expenses. So make sure you choose an insurance or investment that will assist all your health based expenses. Be it a Floater or Separate insurance plan, constantly check it and have it well funded. 

For more information read. Health insurance importance.

Invest and uphold it 

Last but not the least, it is time to act.  I have noticed a lot of people who do all the four important things perfectly but fail to act. Invest in the right funds. Diversify your investment rather than placing all your bet into one basket. Make sure you have separate accounts for meeting emergency, daily, and investment needs. By doing that, you will not have to break into your investment every time you have a catastrophic situation in hand. Closely follow the market and handle your funds carefully from time to time. Don’t touch the corpus which you have invested for your retirement until the time has come. 

It’s never late to do the right thing. You might be in your 40’s and still run short of funds to meet your retirement requirements. It is never an issue as long as you plan it properly and follow discipline in your investment. Develop an investment strategy. With a perfect plan followed by a brilliant strategy which in turn is executed flawlessly is less likely to meet failure.