Planning For Retirement

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One of the most neglected areas in personal finance matters is planning for one’s retirement. We have found that most individuals begin planning for it when they are in their 50s. Particularly,the “sandwich generation” have not only their young children to take care of but also their elderly parents, and hence end up postponing retirement plan still their twilight years. Individuals save for big ticket items —buying a house, car, planning for a vacation, etc. Yet, they tend to ignore that the most important time they’ll ever ‘buy’ in their lifetime is their retirement.
Most of people never have a perspective of ‘buying’ their retirement, but that is exactly what we should do when we allocate a certain portion of their income towards the retirement fund. How well we have planned for our investor’s retirement will decide how peacefully they will retire.
The retirement corpus you need, adjusted for inflation, is likely to be substantial. The normal PF and PPF savings are not adequate in majority cases. While you plan for your retirement, ensure you have a decent health cover, start early to get compounding advantage, gradually de-risk your portfolio as you move towards retirement, review other financial goals, create regular returns, pay off debts and focus on retirement savings. The retirement corpus should sustain your current lifestyle after retirement as well. When you factor in inflation, you will realize that the amount you need on retirement is much higher.
Start your retirement planning early to maximize investments through the power of compounding.
Optimum asset allocation is important for retirement planning. When you are young, your asset allocation should be mostly in equity, progressively shifting to debt as you near your retirement age.
Invest in SIP to harness the power of compounding and to create wealth from your regular savings. Increase your SIP investment amount with time.
Have a financial plan and consult a financial advisor if required.
Here’s what can be done to build your corpus, to help you live a comfortable retired life:-
Ensure you have adequate risk cover for your life and your health. Post re tirement, purchasing insurance policies may be impossible or expensive due to the age factor. Hence you must ensure you are adequately insured.
When you have about 10-12 years left for retirement, take a stock of your retirement corpus with the present level of investment. If you realize you are falling short of the target, then increase your retirement contribution. When a majority of your investments are exposed to equity instruments, you can achieve your retirement corpus in a easier manner than when compared to debt exposure. However, make sure this suits your risk profile.
When you get closer to retirement, at say, five years or so, you should look at gradually de-risking your portfolio. This is to insulate your retirement portfolio from volatile market movements, which can reduce the value of the corpus. However, you must not completely move your investments to debt, as returns may not match up to inflation. Therefore you should always leave a small portion of your portfolio in equity-based investments.
When you are nearing your retirement, you may have to meet important goals of your life like your child’s post-graduation or your child’s wedding. When you receive any windfalls or inflow of a large lump sum amount when you are nearing retirement, use this to meet your goals and do not dig into your retirement savings.
Invest in instruments which will help you give regular returns after your retirement. Examples of such investments are fixed deposits and dividend mutual funds.
Repay your debt before you retire. Home loan is the most important liability of any individual’s life. If you do not repay your debt before you retire, this will cause a strain on your cash flows post retirement. This necessitates a larger retirement corpus. Hence make sure you have no outstanding liabilities when you retire.
Saving is always worthwhile, and it is never too early or too late to start saving for your retirement. Retirement savings is usually an ignored concept. Make this a priority. A well-structured financial plan can help you lead an easy, stress-free retired life.