Retirement planning is easy and essential for everyone. You definitely want to make sure that you have loads of fun and lead a stress free retirement life. For that, you need to start retirement planning now. The early you start, the better it is because then you have more time and you can save more. Starting to save at an early stage in life might help you accumulate a commendable retirement corpus.
If you too are looking for tips on how to start retirement planning, you have come to the right place.
To start planning for retirement, the first thing to do is to identify your ultimate financial goal. That’s because every individual has a different financial goal, and it totally depends on what you are saving for. For example, you may already have a pension scheme in your portfolio offered by your current employer. To add to that, your existing investments might hold money in schemes like EPF (Employee Provident Fund) or NPS (National Pension Scheme). Those who already have so many investments might have other retirement goals, for example, they might want to invest so that they can give their children a lavish wedding, or they might want to purchase a weekend home.
Thus, every investor’s retirement planning strategy will differ, and you too should have a defined goal if you want to plan your retirement smartly.
Here are seven key steps which might help give your retirement planning a motivating kick start:
- Make sure you know how much you want to save: Understand that when you retire at the age of 60 (standard age of retirement), you should have enough retirement corpus that can help you stay financially independent for at least the next 25 to 30 years. Keeping a realistic budget in mind and then working towards it is more any day better than investing without a clear objective. You will not be able to diversify your investments if you aren’t sure how much actual corpus you need to lead a stable and stress free retirement life.
- Identify your investment horizon: Your present age and your approximate age of retirement conclude the amount of time you have in your hand to plan for retirement. We say approximate age because not everyone wants to retire at 60 years of age. Some aspire to retire at 50, and some outliers wish to retire at 40 years of age. So depending on how much years you have in hand to build a retirement corpus, you should decide where and how much money to invest. Investing in the equities through mutual funds can be one of the ways as mutual funds offer high risk to return ratio. Having said that, investments made in the equities are exposed to market volatility and only if you have some appetite for risk, consider investing in equities. No matter where you invest, make sure you give yourself enough years to potentially grow your corpus.
- Identify your post-retirement expenditures: Just like identifying your overall retirement budget is necessary, finding out how much will be your average monthly expenditure post-retirement is equally essential. If you are capable of living on a low-income budget right now, it means that you are well prepared to lead the same life after your retirement. Also, if you have any extra expenses like a house loan or your child’s education, these expenses are bound to vanish with time.
- Try and put an end to all your credit accounts: Another important thing to keep in mind while planning retirement is to make sure that you aren’t riddled with any debt burdens. Make sure that you do not owe money to any individual or financial institution before you retire. That’s because after you retire your income sources are about to decline and you’ll mostly be living on a fixed budget. The only source of cash flow during retirement age is pension or dividends (if you have invested in any mutual fund schemes). So make sure that you do not owe anyone anything.
- Identify how much income you’ll be drawing after your retirement: In case you have already invested in schemes like PPF or NPS, or if your office allows pension for its retirees, you need to know how much income you’ll be drawing from these sources. The income you’ll be drawing monthly or annually should be able to take care of your post-retirement expenses.
- Invest in good health policy: Some organizations offer healthcare for its retired employees. In case your company doesn’t offer healthcare for its employees, make sure that you invest in a good health plan that covers expenses of you and your spouse. As you grow old, your immunity drops and there are chances of you needing a decent corpus to cover these medical expenses. Failing to invest in a good health scheme means you will have you shell out money from your retirement corpus. You don’t want that to happen, do you?
- Make sure that you invest enough: No matter how much you invest in a retirement fund scheme, it’s never enough. Because as we stated earlier, retirement is a phase where you’ll be withdrawing more than adding to your corpus. Thus, the more you save, the better it is. The last thing you want to do in your old age is to seek financial help from your children who might or might not be able to help you in the need of the hour. Save more and make sure that you always remain financially secured, especially during your sunset years.
Follow the above steps, and you shall be able to plan your retirement effectively. You can also opt for retirement calculators available online to calculate how much money you need to accumulate for your sunset years potentially. Invest in a retirement fund that has the potential to help you achieve what you desire.
