Retirement is a time for rest and not financial stress. The “golden years” should be a time to enjoy the fruits of your hard work with comfort and security. So, when it comes to planning your retirement, it is important to make sure you are covering all the bases. Keep in mind that depending on the age at which you retire, additional factors may also need to be considered.
Most often investors tend to overlook the impact of inflation on savings and pencil it in at the planning stage. With time, the cost of living is expected to rise while your regular income post retirement would have come to a halt. What is often forgotten at this stage is along with retirement, there could be an increase in medial expenditure in the form of regular health check-ups, frequent hospital visits, tests and increased reliance on medication.
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It is a general notion that retirement planning is not that tedious and hence is the least planned for financial goal. Individuals postpone their planning for retirement till they are just a decade or more away from retirement. This is a grave error which needs to be avoided at all costs. The solution lies in planning for retirement just like we plan for any other long term financial goals.
Here are some tips which could help plan your retirement better:
Your children are not your retirement fund
This is a brutal truth - the earlier we accept, the better. You cannot depend on your kids for meeting your retirement expenses. Out of their love and concern, children may support you but it is important to not overburden them financially since they too may have a family to take care of.
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Create a monthly source of income
As we age, our ability to work and create regular income source may be challenged. In this scenario, it is important to create a source of passive income through investments. This can be possible only if you start early and stay disciplined. Start building a retirement kitty post figuring out how much will be required to live a comfortable life. Do not forget to factor in inflation. Over the years, inflation tends to eat up a big chunk of your portfolio. You can quickly check the future value of your money easily through an inflation calculator. E.g., Rs.50,000 today will be worth more than Rs.2 lakh after 20 years. So, investing in investment options which can generate higher returns than inflation becomes essential.
Start a SIP in equity scheme
Since retirement is a long term goal, opt for investing in a diversified equity oriented mutual fund scheme. This is because equity is one asset class which has the ability to generate inflation adjusted returns. As per Value Research data, diversified equity mutual fund has generated return between 12 to 18% over the past decade. So, start a monthly SIP into an equity mutual fund and top-up the SIP amount every year, in line with the rise in income. This is one of the simplest ways to plan for retirement when time on your side.
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In case if you are late in the game, instead of worrying, initiate SIP in an equity-oriented hybrid mutual fund scheme. This is because as the investor nears the goals, it is important to protect the corpus being generated. In an equity-oriented hybrid fund, the investment will be spread across equity and debt, with the larger portion being invested into equities. Because of the presence of debt, even if the market were to turn volatile, debt will provide downside projection which is very important at this stage of the goal. In effect, the risk profile of such a scheme will be lower when compared to an equity mutual fund scheme.
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To conclude, executing an early plan towards building a retirement kitty is a step that needs to be initiated as early as possible. The earlier you start, the better it is. This is true even if your retirement is 25 to 30 years away. Keep the plan simple and stay with it. You will be surprised at the corpus accumulated at the retirement age.
