Retirement Planning is must for everyone - but only few of us take it seriously.
There are a few simple things that you should always keep in mind while planning for your retirement. These steps will ensure that you do not have to compromise on your standard of living when your regular income stops.
Here are the 3 Simple Steps which can give you peace of mind during your retirement years.
- Start early, and retire peacefully
When you are young, your risk-taking capacity is high and since you are earning well and you also have the necessary time to plan your retirement, you can expect high rate of return. As your age increases, your risk taking capability decreases. Also, since the time left to retirement decreases, chances are higher that you might not achieve 100% of your desired retirement corpus if you start late.
(Do use our Retirement Calculator to see how much you need to retire peacefully)
We will illustrate this with the help of an example:
Mr. X wants a corpus of Rs. 5 crores by the time he retires at the age of 60.
This is quite a tidy sum. His current investible surplus per month is Rs. 10,000 p.m. and it will remain this amount until his retirement. Doesn’t seem very difficult, right? He will invest in equity mutual funds, and so expects to earn approximately 12% p.a. as return from his investments over the long term.
Given here is a table showing 3 scenarios, in each scenario we have assumed different current age of Mr. X:
|Scenario ||Current Age ||Investment (p.m.) (Rs.) ||Investment Return ||Corpus at Retirement (60 years) (Rs.) |
|1 ||25 ||Rs. 10,000 ||12.00% ||Rs. 64,952,691 |
|2 ||35 ||Rs. 10,000 ||12.00% ||Rs. 18,976,351 |
|3 ||45 ||Rs. 10,000 ||12.00% ||Rs. 5,045,760 |
From the above mentioned table we can conclude that if Mr. X current age is 25 years, he is able to save approx. Rs. 6.50 crores by the time he retires, but if he is 10 years older i.e. his current age is 35 years he is just able to accumulate approx.Rs. 1.90 crores. In the last scenario we have assumed his current age as 45 years and he is just able to accumulate approx. Rs. 50 lakhs.
Out of the above 3 scenarios Mr. X is achieving his desired corpus of 5 cores only if his current age is 25 years. In the other two scenarios he is not able to achieve his desired retirement corpus.
The reason he is able to achieve his desired retirement corpus in the 1st scenario is because of longer time horizon. The more time you give yourself, the longer your money works and compounds for you. You are giving yourself the gift of compounding.
(Read our article titled The Psychology of Planning for Your Retirement)
- Follow your Asset Allocation
Your asset allocation will tell you how much you should invest into each asset class (equity, debt, gold), based on your number of years left till your goal.
For example, if you are going to retire in more than 10 years, then depending on your risk profile, your retirement funds can be channelized primarily into equity, with a 10 to 15% exposure to each debt and gold. However, if you are retiring in less than 3 years, it is advisable to redeem any equity investments and shift towards debt investments that are fixed income in nature, and not linked to the market.
- Track and review your plan
Your retirement plan needs to be monitored at regular intervals to make sure you are on target to meet your objectives. You could do this on your own or take assistance from your financial advisor. Make sure the plan meets your investment objectives in changing market scenario.
If you follow the above mentioned 3 points in a systematic manner, planning for your retirement is not a difficult task. The challenge just lies in implementing the plan with disciplined investing.
Also remember, when planning for your retirement you are planning the finances for the golden years of your life. Don’t compromise today on how you are going to live your life tomorrow.
To give you an idea of how rewarding a retired life can be, if it has been properly planned for in advance, here are some broad activities that you might enjoy:
- Travelling - discovering new places and cultures or rediscovering old places
- Expand your mind - increase your reading
- Improve your health - you have time now for all the exercise you wanted to get while you were working but could not because of the office! You can go jogging, swimming or cycling, or pick up a sport
- Pick up a hobby - photography is a favourite but can get expensive; art, golf and music are close seconds
- Do charity work - you have had a rewarding life, now is the time you can give back to society, teach underprivileged kids or volunteer at an old age home
- Spend more time with family - your kids and grandkids
That adventure sport you wanted to try? Your retirement is when there will be nothing to hold you back.
So give your retirement the importance it deserves. Planning for it now will determine how comfortable it will eventually be. Ad these 3 simple steps will help you achieve the retirement of your dreams.
For a personalized Retirement Planning solution, please do Contact Us -our team of Investment Consultants will be happy to help you.