Every person values their financial freedom, especially after retirement. In today’s modern culture where joint families are becoming scarce, and people are forced to live alone post-retirement. Financial independence and not having to rely on your children for everyday expenses can be a boon in the present day.
Things to Consider Before making a Retirement Plan
While it might never be too late to plan for your retirement, it is considered best to start planning for your retirement early, somewhere around in your late 30s or early 40s. But before you start planning your retirement, you need to evaluate the following to enable you to be better equipped to plan for your retirement.
At what age do you wish to retire?
While many people desire to work until they reach their retirement age 60, some might wish to retire early to spend time with their family, pursue their dreams and ambitions, due to health reasons, etc. Hence, it is vital to know that at what point of time in life would you wish to retire, as a plan without a clear time-bounded financial goal may not be futile.
The lifestyle you wish to maintain Post-Retirement
Our lifestyle determines our cost of living, monthly fixed and variable expenses and helps us to set a target for a post-retirement income. While in many cases, it is not possible to sustain the same lifestyle post-retirement, proper retirement planning can ensure minimal compromises to your existing lifestyle post-retirement.
Existing health-issues and Provision for Future Health Ailments
Before designing a retirement plan, it is also important to evaluate your and your spouses and parents existing health condition, evaluate any health issues which are hereditary and can affect you in the future. Evaluating pre-existing and possible health ailments in the future can allow you to select the best possible health insurance which will ensure that your savings and retirement nest is not exhausted by medical bills.
Present-Value of your Investments and Assets
Many salaried-individuals, retail investors and professionals make investments in mutual funds and other tax saving investments towards availing deductions under section 80C of the Income Tax Act. Often, the investors do not realize that their contribution made towards availing tax deductions have also appreciated. Further, people might have physical assets such as residential property, investment properties, gold and silver, jewellery, etc. Individuals need to evaluate the present-day value of their existing investments before preparing a retirement plan as many of these assets can help you make your money work for you even after retirement.
Present and Future Family Responsibilities
Parents do not think before completely going off-track with their retirement plans or breaking into their retirement nest and another form of savings when it comes to their children. Higher education and marriage are one of the few things when people use their emotions rather than brains while incurring these expenses. Hence it is important to make provisions for these milestones in your children’s lives while making a retirement plan.
Making a Retirement Plan
Once you have evaluated your existing financial position, possible future expenses on the road to your retirement and how your life should be after retirement, you can begin with your retirement plans and incorporate some of these healthy habits.
Make Investing a Habit
Instead of using your savings for investing, you should allocate a certain proportion of your monthly income towards investment. You can invest about 5-10% of your monthly income by investing in SIPs, RDs etc. A small monthly contribution can result in a handsome retirement nest for you and your spouse without affecting your monthly expenditures and budgets.
Increase your Investment Amount as your Income Grows
A person’s ability to earn increases as they gain experience within their fields. While salaried individuals grow their income with promotions, salary increment, performance-linked bonuses, etc. the professionals grow their income due to their expertise and experience. While it is always considered wise to begin investing early, an individual should increase their investment amount as and when their income grows.
Do not Withdraw from Your Provident Fund
The Provident Fund is a retirement fund wherein 12% of the basic salary is deducted from the salaries of employees and employers are also required to contribute to the provident fund of their employees. While the amount of deduction towards the provident fund might appear insignificant, these small contributions made to the provident fund can accumulate into an attractive retirement nest. The purpose of the provident fund is to provide a corpus at the time of retirement, and hence, salaried individuals should avoid making withdrawals from their Provident Fund, with the exception of financial emergencies.
Take adequate health insurance
As people age, they become more prone to health issues and ailments. While most ailments are often associated with the lifestyle of the person, certain ailments can be genetic as well. Nonetheless, medical bills can put a deep dent in your retirement nest if you are not adequately insured. Hence, it is vital to ensure that your medical and health insurance cover every possible ailment, offers cashless hospitalization and have minimal exclusions within their policies.
Do not Withdraw your entire Retirement Corpus at once.
People who have invested in shares, mutual funds, retirement funds, etc. should not withdraw their entire corpus at once. This is because the retiree can outlive their savings and retirement corpus and this investment corpus can continue to work and earn money for the investor, even after they retire. Hence, retirees should withdraw their investment corpus in small batches rather than liquidating their entire retirement nest in a single stroke.
Pay of your Liabilities before Retirement
It is important to clear all your liabilities, including home loans, personal loans, etc. before you retire. Any default in these loans can result in loss of asset against which the loan might have been either mortgaged or hypothecated. These assets can help you earn post-retirement, and hence it is advised to clear all your liabilities before your retire and clear the title of your physical assets.
Make your Physical Assets Earn for You
Retirees can get a little creative and make their assets earn for them. Physical assets such as properties can provide retirees with a regular rental income. Retirees can also rent out their additional rooms to paying guest or offer homestays to travelers by registering on platforms such as Airbnb. Just because you have stopped working does not mean your assets cannot continue working and earning for you.
Conclusion
Financial independence post-retirement is every person’s dream, but it requires long-term financial planning, making wise decisions and evaluating your existing financial position and their desired financial status post-retirement. While making a retirement plan might sound easy, it is not, and it is advised to hire a professional who can assist you to evaluate your future retirement goals and develop a viable and a practical road-map to reach and achieve your retirement goals.