Some simple actions can ensure that life post retirement is brighter and happier than expectations….

A must read for people in their youth and not just for those nearing retirement….

It’s a common thinking that retirement planning is something that people in their fifties need to worry about; all others respond to it in many different ways. Those in their thirties, think, there is long runway and things would get taken care, their retirement benefits and saving will somehow magically add up to it. Those in forties, start to add their wealth and talk about starting something to save for retirement, some do initiate some tangible actions but still being completely unaware of how much do they really need.

Here I am trying to make some attempt to bring out, how some simple actions taken in time can make this whole exercise simple, pleasant and very rewarding, and also ensure that post retirement years are as good, if not better than pre-retirement years.

And the pre requisite is to start early, and therefore its something that people in their twenties and thirties need to read, understand and start working on, not tomorrow but today and right now. Even if you are in your late twenties and don’t like the idea of spending time on something as distanced as retirement, I urge you to devote next 15 minutes, and even if that time investment does not encourage you enough to start, it will certainly leave you with something to ponder upon.

While I will be outlining several simple actions one needs to take, the two most important that stand out for me are:

Start early & maintain a separate bucket:                     I think, start early as a concept is well understood. Earlier you start saving, more you will accumulate and add to it the magic of compounding, you could be looking at substantially more wealth.

But ‘maintain a separate bucket’ is a concept, you might not have herd or thought of. It simply means, save separately for retirement, allocate an account or investment where you put money to be left till retirement, irrespective of age you are in. It’s a place you put some part of saving for next 20/30/40 years depending on your current age and probably review once a year to ensure all is fine and investment is doing adequately well. If you are 30 years or less, allocate 15% of your savings to retirement fund, or 25 % if you are in 30 to 40, or 30% for 40 to 50 years etc. This fund accumulation is not to be used for any financial need till it’s a question of absolute crisis of life and death. (Assuming you maintain a separatee emergency fund, and we will talk about it.) Since this fund accumulation is for long term, you can invest it into an asset class like equity, of a balanced fund, depending on your age, to get best possible return and best possible compounding effect. Most of us make the mistake of not allocating savings separately for different goals, and thus save as lumpsum and spend out of it whenever we want, and this turns our financial journey unpredictable.

Don’t underestimate future costs and overestimate future earnings:           Second important aspect is to be realistic, do as accurate estimate of your future financial needs and earnings post retirement as possible. It’s better to ire on the side of caution. Take the help of a qualified financial advisor to do this for you, otherwise there are enough tools available in public domain to do a good job of these. Plan for a worst case, do factor in some unforeseen situations and make provisions for such circumstances. Also ensure you have adequate health and house insurance etc.

Inflation is the elephant in the room, don’t ignore:

The way return on investment has compounding impact on growth of wealth, Inflation has the same in eroding its value. Its very important to factor it into the calculation, while working out the corpus required. A 4% inflation can reduce your 12% return on investment to 8% real value, and that means 33% erosion. Not enough can be said and emphasised on this.

Emergency corpus, Health insurance, Life & Home insurance are absolute MUST:

It may be the fourth item in my list but is the FIRST action that one needs to take. Irrespective of the age, if you have not done these four things, do it today rather DO It NOW. Any of these have potential to completely destroy your financial wellbeing. There is no right way to emphasise the need of these enough. So far as quantum is concerned, there is no right and wrong, ensure that you have done a logical estimate, based on the earning capacity, expenses and liabilities, family size and number of dependents, their medical history etc. Reach out to a professional to help if you need it.

And the last on my list, tax liabilities post retirement:

It’s probably the most difficult to estimate because one is not veru sure of the tax rules at that point, also of the likely income out of investments. But keep this item in you do list so that you do not miss out and make best estimate provision, to be finetunes as you get closer to the retirement.

 

There could be more Dos and Don’ts that your financial advisor can guide on, but important her is to make a beginning, and as mentioned in the beginning, the right time is NOW and also to ensure that you maintain your retirement corpus separate, review it periodically, make amends based on changes in your income, expectations, needs, rules, actual investment returns, inflations etc.