Steps To Planning Your Retirement
The corpus that you build for your retirement depends on 2 broad factors:
- the choices you make, and
- the behavior of the financial markets.
We have no control over the behavior of the financial markets, so let's leave that one aside.
Consider the first. Can you imagine what your retirement life would be like if all the choices you made were absolutely perfect? If you didn't make a single retirement planning mistake, if every time you invested, it was according to plan, in the right asset class, in the right instrument, in the right option and at the right time? Wouldn't life be grand?
In the spirit of achieving that investing perfection, let's educate ourselves on What We Need to Do.
Let's get started.
Have a Retirement Plan
At PersonalFN, we have seen our clients go through incredible growth phases - not growth of the financial markets, but phases of personal financial growth.
When clients come to us, the state of their investments ranges from the slightly unstructured to the completely messy. If you don't know where your money is, you won't know what it's doing. Our clients often come to us slightly confused, not having articulated their financial goals, and looking for financial help.
By the time their Retirement Plans are created and finalized, they have a new sense of empowerment and discipline, clarity on their financial life, and a solid plan that they can follow. So you see, the personal financial growth is incredible.
To familiarize you with our process, we will walk you through a few things and also help you find out how much of a corpus you need to build to retire in peace.
Remember, you are earning and investing now, so that you build up enough funds to cover all your expenses for your entire retired life, so give your retirement plan the attention and importance it deserves.
Diversify & Rebalance Your Assets
Don't make the mistake of thinking that it's all about equity / property.
You must have a proportion of your wealth in different asset classes such as debt and gold.
There's a thumb rule you can follow to know how much equity you should have, and it's got nothing to do with your age.
It's got everything to do with your investment time horizon.
If your retirement goal is less than 3 years away, you need to be in debt / fixed income products. This is not the time for equity.
If your retirement goal is between 3 and 5 years away, you can have part equity exposure, up to 45%, with 15% in gold, and 40% in debt / fixed income.
If your retirement goal is more than 5 to 7 years away, you can have anywhere between 45% to 60% in equity, with 15% in gold and the rest in debt.
If your retirement goal is 7-10 years away or more, you can opt for 75% in equity, 15% in gold and 10% in debt.
If you follow this, you will never face the panic that equity investors faced when the market crashed (thanks to Lehman Brothers) in 2008.
That's not all. You also need to keep track of how and when to rebalance your funds.
Remember that as your retirement goal time horizon changes, your asset allocation must change. In your Retirement Plan, your investments need to be rebalanced to reflect the right asset allocation for the goal's reducing time horizon.
Asset Allocation is important for any life goal that you want to achieve.
In this video, our founder Mr. Ajit Dayal talks about how the right Asset Allocation is vital to achieving your life goals:
Save Now, Spend Later
I Understand The Steps in Planning For My Retirement! Now, How Should I Proceed?
The more you invest today, the more (much more) you'll have in hand when you are 60.
The numbers are straightforward: If you invest Rs. 10,000 per month for 10 years, you will build a corpus of Rs. 27.50 lakhs at a growth rate of 15% per annum. Increase this to Rs. 12,000 per month, for the same time period i.e. 10 years, and you'll build a corpus of Rs. 33 lakhs. Increase this to Rs. 14,000 per month, and you've got Rs. 38.50 lakhs.
So get a grip on your spending, save more, invest more, and retire earlier and richer.
But be sure to invest in the right places and under professional guidance.
Don't spend more than you have to on the taxman
Paying taxes can sometimes leave you with a 'what a waste of money' feeling.
In order to avoid this feeling, and also to save and invest more money, go through the following little tips:
Make the most of all your deductions.
Save medical bills in a shoebox throughout the year and claim Rs. 15,000 worth of deductions.
Buy medical insurance (for the medical insurance) and claim the deduction on the premium.
Buy a small second apartment if you can by taking a home loan, and claim the benefit of principal and interest repayment.
If you live in a rented apartment, see if you can restructure your salary to claim the maximum HRA possible.
Invest in PPF and don't withdraw from it until you retire.
You now know that you need to have a plan in mind, diversify and rebalance your assets, save and invest, and save taxes. Your next step now that you know how your Retirement Plan should be broadly structured is a specific step. You need to see how much Retirement Corpus you need.
For this, use our Retirement Planning Calculator.
Once again, let us urge you to not delay your retirement planning! The earlier you start, the easier it will be, and the more of a corpus you will build!
Take me to the Retirement Planning Calculator Now!
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