PLANNING FOR YOUR RETIREMENT: 4 SIMPLE THINGS THAT CAN MAKE OR BREAK YOUR RETIREMENT PLAN

 

Retirement Planning is something each one of us absolutely must do – but some of us take it less seriously than others.

 

When planning for your retirement, there are a few simple things that will enhance the success of your Plan – and help you retire with a higher level of wealth. These 4 simple points will help you sleep better at night.

 

1. Set the Goal
   
   To do this, you need to first simply check how much you are spending today, on household and other expenditure. Many of us will have only an estimate of this figure- this is probably not the most perfect figure to use. Remember – your goal figure has to be a realistic one, else you will end up saving too much (perhaps compromising other goals) or not enough (and not achieving your retirement corpus).
   
   First, track your expenses (use our personal finance tracking tool – MyPlanner – its free) to know exactly how much you are spending today.
   
   Then, factor in inflation to see how much wealth you need to build to sustain your lifestyle in your golden years. You can either do the maths yourself, or use our Retirement Calculator.



 
2. Start as early as you can, invest as much as you can
   
   By starting as early as you can, what we mean to say is, start immediately. The power of compounding (which is what will grow your 1,000 invested into equity today to more than quadruple in 10 years) will work more in your favour, the longer your goal time horizon is.
   
   Invest as much as you can – because even a 1,000 increase in your regular investments will cause a tidy increase in the wealth you can accumulate.
   
   Consider the case of Mr. Shah – our favourite fictional investor.
   
   Mr. Shah has invested 10,000 per month into diversified equity mutual funds for the last 20 years.
   
   Mr. Shah’s brother started investing exactly 2 years before Mr. Shah, and invested for 22 years. He invested 10,500 a month into the same mutual funds. He has the advantage of not only starting earlier but also investing more.
   
   At the end of his 20 years of investing, Mr. Shah accumulates 1.49 crores approximately – a tidy sum.
   
   At the end of his 22 years of investing, Mr. Shah’s brother accumulates 2.15 crores approximately – 50% more than Mr. Shah.



 
3. Follow your Asset Allocation
   
   Your asset allocation will tell you how much into each asset class (equity, debt, gold) you should be, 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.



 
4. Make the Most of Your Tax Saving Investments
   
   Use Section 80C up to the full 1 lakh limit – you can invest into long term instruments ranging from PPF (debt) to ELSS (equity).
   If you have a home loan, use Section 24 (interest on your home loan) wisely. Also see our recent article on Popular Tax Saving Deductions for more tax deductions that can increase your savings and hence your investible surplus.
   Remember, a rupee saved can be a rupee invested! And we have seen what compounding does to the rupees that are invested.
   
   Remember, when planning for your retirement you are planning the finances for a period of approximately 25 years of your life. Do give this goal the importance it deserves, plan and invest carefully and properly.
   
   For a personalized Retirement Planning solution, please do Contact Us –our team of Investment Consultants will be happy to help you.

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