Retirement is one of the critical phases of a person’s life.
The first thing you require to do is assess your income and expenses
Retirement is one of the critical phases of a person’s life. It is now reasonable to live up to 90 years; therefore, a steady income plan for at least 30 years after our retirement is required that you can live comfortably in the retirement years. Besides, you must factor in higher healthcare costs, caregivers, lifestyle needs of the aged people, and an increase in the living cost due to inflation. The absence of a regular monthly income puts a strain on the existing savings and returns from investments. It may sound complicated but intelligent, and of course, early planning can secure your future.
9 Golden Rules for Retirement Planning
1. Plan for more than you may need
The first thing you require to do is assess your income and expenses and make a provision for contingencies. The costs of living increase as we get older, especially after retirement. Also, people living longer need to plan well if they want to continue with the lifestyle they have before retirement. As per rule, it’s better to be cautious and plan for more than you may require. Generally, people feel that they need around 70% of their last drawn income. But, it is advisable to assume that they may need more. Start with an estimate of all the expenditures.
2. The 4 Percent Rule – A Useful Guideline
The 4 percent rule was derived by financial planner William Bengen that states how much income you could draw down from your investments. With an investment portfolio of 50-50 equity and bonds, a retiree should be able to outlive the funds, drawing down only 4% of the investment every year, adjusted for inflation. It means that the investments must be for the long term like 30 years. However, this 4% rule is not necessarily perfect since it relies on past data and doesn’t consider current market estimates or future risks; still, it can guide you.
3. Start Retirement Planning Early
Retirement planning is usually a long process; the earlier you start investments, the better the yields. As a rule, you should start retirement planning as soon as you start earning. Compound interest on early investments adds up to significant multiples. Younger the person to start retirement investment, the higher is the resulting payout at maturity. However, if you have not begun investing from an early age, you have to invest significantly more to achieve the target. Say you use the 4% rule as a guideline, so if you wish to drawdown INR 1 lakh per month after your retirement, then your investment corpus must be at least INR 3 crore.
4. Allocate a Fixed Percentage of Income towards Retirement Corpus
You should invest a fixed percentage of the income towards the main retirement corpus that always helps. Always be careful not to use any part of the corpus or the principal amount before retirement.
5. Create a Fund for Contingency
Sometimes unplanned expenditures and unexpected events empty your savings and wreck your planning. Planning for known happenings is easier than planning for uncertain events such as medical emergencies, any unexpected event, or unforeseen circumstances like the COVID-19 pandemic. Moreover, if you are a self-employed and private sector employee, lack of government social security schemes and retirement benefits creates a requirement for more provision for contingencies after retirement.
6. Increase the Volume of Investment with an Increase in Earnings
You fix your investment based on your income, and there is always the scope to increase investment as the career graph moves up. As such, there comes a phase when the volume of investment can be increased. Always invest more when there is any such increase in earnings.
7. Never Ignore the Inflation Factor while choosing a Retirement Plan
It would be best if you remain aware of the fact that inflation affects financial planning profoundly. Inflation can make your returns take a plunge. While choosing any plan, ensure that you have taken the futuristic price-rise projections into your consideration.
8. Invest in Health Insurance and Specific Plans Simultaneously
One of the most critical aspects of planning at this stage is a high healthcare budget. Medical problems are inevitable in old age, and with that, health care expenses increase unavoidably. Investing in health-insurance simultaneously with specific plans is a must. Always plan for the financial safeguard required in times of emergency. Also, check with your employer if you can continue with the existing health insurance after retirement. It ensures that your savings and the returns from the investments do not suffer due to medical contingencies.
9. Get Rid of Debts before Retirement
Retiring individuals must get rid of debt before it eats into the corpus. You may have existing liability; manage them in a way that you pay them off before your retirement.
Best Ways to Generate a Guaranteed Income Stream
- Invest in Real Estate: It includes owning a property and lease the property to earn a rental yield. Real estate assets can be sold off later that create an additional corpus for investment.
- Senior Citizens Savings Scheme in public sector banks such as SBI: Applicable for seniors of the age above 60 years, with an investment of up to INR 15 lakh and offers an interest of more than 8%. Investments made in this scheme also qualify for tax benefits u/s 80C of the Income Tax Act.
- Monthly Income Scheme (MIS) at Post Office: Investment scheme offers a guaranteed return of more than 7% per annum.
- Mutual Funds: Investments that have higher liquidity and helps the investor to earn a steady income.
- Pension Fund: These investments are low-risk options that help preserve the capital, though they offer much lower returns.
- Reverse Mortgage: It is a good solution, though not very popular in India.
RECAP: Quick Tips to ensure that you have a Good Retirement Plan
- Think that you will live long and then plan.
- Start investment early.
- Take a proactive retirement planning strategy, assuming that you will retire early.
- Beat the inflation either by accumulating even a larger corpus or by investing in the right inflation-adjusted corpus.
- Provide for contingencies.
- Provide for medical expenses more after retirement.
- Provide for your heir(s) who may outlive you.
- Be vigilant about retirement income sources like provident fund, gratuity, and other benefits.
- Know about retirement savings plan management and consult professional investment advisor that works.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
(About Author: Arindom is a professional writer, editor, blogger and a member of the International Association of Professional Writers and Editors, New York. A management postgraduate in finance with extensive industry exposure, he is associated with many reputed global online magazines and publications as a regular contributor. He loves to help his readers writing highly informative and well-researched investment-related content to make informed decisions.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of organization)