- You are clear about the monthly expense you will incur after retirement and know your retirement corpus
- You are reviewing your investment portfolio periodically
- You have comprehensive health insurance plan in place
- You have cleared your loans and debts
- You have created a separate corpus to fulfill your post retirement ambitions
Retirement planning is not as difficult as it is thought to be. If done methodically, you can achieve your final goal of leading a comfortable life during your retirement years.
Broadly, there are signposts that show you are on the right track:
You know your retirement corpus
To calculate how much money you will need after retirement you must be clear about the monthly expense you will incur once you have retired. Ideally, 70-80% of your current monthly income would be sufficient every month once you have retired. But don’t forget to consider inflation in the whole process. Inflation reduces the purchasing power substantially.
Let us understand this with an example. Shyam is 30 years old and wishes to retire at 60. He currently spends ₹50,000 monthly to meet his expenses. If we consider the rate of inflation at steady 6%, then after 30 years, when he retires, he will need approximately ₹ 2,87,000 to meet his monthly expenses. Therefore, if you ignore inflation, you will save much less than what you will need.
Using this, you can calculate the total retirement corpus you will need. Retirement calculators can help you calculate this with a few clicks. All you need is enter your current expense details and get an indicative figure of how much you need to save after retirement. If you already know the corpus you need to save for your retirement, you are on the right path.
You review your portfolio regularly
When you are young, you can afford to take risks by investing in high-risk- high return funds. However, as you approach retirement, it makes more sense to shift your investments into funds with lower risks. You will not want to have your earnings under high risk when you are on verge of retirement and your income is about to stop. Hence, make sure you keep reviewing your portfolio regularly.
For example, you may choose to invest in Unit Linked Insurance Plans (ULIPs) to grow your wealth. ULIPs are life insurance plans that offer you the dual benefit of life insurance and investments. It offers various funds with different level of risks and the returns they give. You can choose funds to invest in any fund, basis your willingness to take risks. So, if you are in your 30s you may choose to invest in high risk, high return funds. However, once you near your retirement age, you can switch your money into low risk funds that give stable returns.
You have cleared your loans and debts
You won’t want to have a debt burden when you are nearing retirement. It is ideal to repay all your debts before or in your early fifties. Start reducing your dependency on credit cards. If paying for a loan seems difficult, you can sell off non-important assets, such as an old vehicle. It is best to create a suitable plan to get the debts off your shoulders as soon as possible.
Your health cover is in place
If all the above factors are in place, the only thing than can topple your retirement plan is a health issue. While some of us may take good care of our health, but life can be uncertain. Get a health insurance plan that can help pay for your hospital expenses. Also, it is prudent to get a fixed benefit health insurance plan that will help you meet the high treatment costs of critical illnesses, such as heart diseases and cancer. Having a comprehensive health insurance cover in place will help you avoid paying for medical expenses from your retirement savings.
You have created a corpus to fulfill your passion
During your working years, you may have kept postponing pursuing your non-work related passions. That passion could be writing a book, scuba diving, traveling to different countries, etc. Now that you are planning for your retirement, start thinking about ways to finance them. It is time you start building a corpus to exclusively fund your passion. You can look for plans that help in long term wealth accumulation. Here also, Unit Linked Insurance Plans can prove to be useful, as they provide favorable returns over a long term.
Retirement planning is an extensive process that requires planning and persistence of years. If you are in control of the factors above, you are going to enjoy retirement as the best days of your life!