Planning for retirement can keep you financially independent even during your golden years, taking care of your day-to-day and other expenses
What would you like to do post retirement? Do you wish to travel and explore new places, take up some hobby you always wanted to pursue or become serious about fitness? Well, retirement can give you plenty of time and opportunity to spend the golden years of life the way you want and with the same lifestyle that you enjoy today. But this dream can become a reality for only a few, who realise the importance of retirement planning. Planning for retirement can keep you financially independent even during your golden years, taking care of your day-to-day and other expenses.
Five golden rules that can give you peace of mind during your retirement years:
Determine your retirement corpus
Unless you know where you are headed, it is very difficult to get there. In retirement planning as well, it is important to have a target in mind that you wish to achieve in order to live life comfortably during your retirement. To compute the corpus amount required for your retirement, you need to make certain estimations and assumptions. Determine your retirement age, your life expectancy (based on family history), your monthly spending, expected inflation on these expenses, expected rate of return on investments (pre and post retirement), and so on.
Start early
An often-heard excuse for putting off retirement planning is, "I have enough time before I retire, so why rush?" Unfortunately, most of us fail to realise that procrastination is the biggest enemy when it comes to making retirement plans. In fact, starting early and ensuring that you have sufficient time on your side is the key to successful retirement planning. Being young provides you a benefit that is not available to all, 'time'.
Moreover, as you grow older, your risk-taking capability decreases. Starting late is disadvantageous, since it gives you lesser time to grow your retirement kitty. There is even a possibility that you may fall well short of your target.
Follow your asset allocation
Different asset classes (equity, debt, gold) have different attributes that help in maintaining the required balance in one's retirement portfolio. Asset allocation refers to investing into each asset class, based upon your risk appetite and the number of years left for goal realisation. If you are going to retire in more than 10 years, then depending on your risk profile, your retirement funds can be channelised primarily into equity, with a 10-15% exposure, each, to debt and gold. As you near your retirement age, you can gradually reduce exposure to your equity investments and shift towards debt / fixed income instruments that are not impacted by market volatility.
Choose suitable insurance policy
Insurance is a must in retirement planning. As one grows older the number of physical ailments that one might suffer from also increases. Moreover, our life is quite unpredictable and uncertain. While you might believe that something will not 'happen to you' – that is often exactly what your neighbour is thinking. Hence, it is extremely important to have a suitable and adequate health insurance policy.
Apart from this, it is also wise to opt for a personal accident and critical illness policy from an early age. You can even maintain a medical contingency fund worth Rs 5 – 10 lakh (depending upon how much you can afford) to compensate for unforeseen events. This will ensure that your retirement savings do not get eroded in case of medical emergencies in your family.
Track and review your plan
Your retirement plan needs to be monitored at regular intervals (at least once a year) to make sure you are on target to meet your objectives. Any changes in the income, expenses, retirement age, etc, needs to be incorporated in the plan. Also, make sure the plan meets your investment objectives in the changing market scenario.
By following these five rules in a systematic manner, planning for your retirement will not be a difficult task. Remember, while planning for your retirement you are planning the finances for the golden years of your life.
This article has been authored by PersonalFN
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