Things that may or may not occur in the future.
When to begin on planning finance for retirement
The best time to start Financial Planning for retirement in India was when you received your first pay-cheque and the second best time is NOW.
It is usual for many of us to aspire for a financially secure and happy retired life . However, being financially prepared to meet the demands of a retired life by saving and investing requires strategic Financial Planning and implementation. You also need to know how to plan retirement income in india. Considering and following the 10 doctrines of wise retirement planning mentioned here would give you sure ways to have a happy retired life. A look at the 10 doctrines of wise retirement planning:
1)An Important ingredient for hitch-free retired life: Provide for contingencies
Most of us tend to underestimate our retirement needs. Provision for medical emergencies with inadequacy of medical insurance in old age requires financial provision.
Lack of government social security schemes and retirement benefits to self-employed and private sector employees creates requirement for more provision for contingencies after retirement.
When you are working there will be numerous ways by which you can source funds (during an emergency) like getting salary advance or borrowing from a colleague or applying for personal loan. The moment you and I retire, we become non-income generating individuals, so no one will lend money for us.
You and I need to become self-reliant in taking care of emergency situations after retirement. A provision for minimum 6 months of expenses including medical expenses needs to be kept as emergency funds to take care of contingencies.
A quick formula:
Contingency Fund = 6 * Monthly expenses
- The best places to park your emergency funds are liquid mutual fund schemes.
- Liquid mutual fund schemes provide better returns than keeping in bank savings account.
- Selected liquid fund schemes give us debit card facility as well.
- The emergency fund needs to be increased year after year based on the inflation and change in your lifestyle.
2)That's a small change in perception, a giant leap in your retirement planning: Think that you will live long
This is true with increased life expectancy. Now you will have more years of life after retirement,thanks to medical advancements.
Because of medical advancement and better lifestyle, the longevity of individuals are going up year after year. Depending on your lifestyle and your health, you may live up to 85 years or 90 years.
This increased longevity makes a retired life of minimum 25 years.
So it is better to plan for the additional years and avoid living frugally in old age.
A quick Formula:
Medical Advancement + Better lifestyle => Increased longevity => Increased retired life => Higher Retirement corpus
3)A proactive retirement planning strategy, you will never regret: Plan that you will retire early
It is wise to provide for contingencies arising that require you to retire early. You could
- suffer ill health,
- lose your job,
- need to care for a sick or elderly member of the family, and
- Women may have to opt in voluntarily to look after the family needs.
All these requires more savings for retirement needs.
4) Beat the inflation before it beats you
Inflation affects the personal finance needs of the working class, but pay rises could help them resolve it to a certain extent. However, you have to save more to reduce the impact of inflation. Investing in modes that give you extra returns could help greatly.
In India, most of them do not care about financial planning after retirement. But it is equally important to give time for financial planning even after retirement.
Investors come to me and say “I would like to accumulate 2 crores and retire”. But when we really work out the inflation-adjusted retirement corpus, the 2 crores would not be sufficient for him to have a comfortable retirement.
2 crores may feed you enough in the first year after your retirement. The returns from the same 2 crores will not be sufficient for you take care of all your needs on the 10th year after your retirement because of the skyrocketing inflation figures.
This inflation will be there even after your retirement. So your financial planning should be in such a way to accommodate the expenses after retirement.
5) A little mistake that could ruin your Retirement Corpus almost overnight: Provide for increased medical expenses after retirement
Most of us underestimate medical expenses after retirement, with these expenses being inevitable in old age.
Medical problems occur in old age and the health care expenses increase unavoidably. Hence more provision for medical insurance is needed.
A consideration of
- Your family’s general health,
- Family history of certain genetic disorders, and
- The class of hospital you get treated in India
would help in proper estimation for medical insurance. Medical insurance is a part of financial planning after retirement.
In addition to the medical insurance, you also need to create a Reserve for Non-claimable and ongoing medical expenses.
6) The Critical Deciding Factor: Provide for your spouse and dependents who may outlive you
It is inevitable that this need should not be overlooked.If your dependents are younger and healthier than you, then they will possibly outlive you.
Creating a financial security for the dependents is your responsibility. It should be one of the goals of your financial planning for retirement.
Your spouse and dependents need to live a secure financial life after your lifetime. Taking up insurance policies during your working life, and well thought out retirement planning will take care of your dependents and spouse financially.
- Make an estimation of how many years your dependents outlive you.
- Create a provision for them, for those many years
7) Realize you need to be vigilant about sources of retirement income
Sometimes we may be ignorant of benefits on retirement like provident fund gratuity and other benefits.
In India, the lack of social security schemes after retirement makes it necessary to invest more in good income generating sources for a steady flow of retirement income.
The advice of investment consultants, along with financial education and information contributes to good financial standing after retirement.
- Create a checklist of the expected income from different sources of income after retirement.
- Note down the periodicity of the income (monthy/quarterly/Annual/ Cumulative)
- Understand the tax implications for these post-retirement income streams.
- Figure out the ability to liquidate or the options to take a loan from these schemes.
8) Educate yourself about retirement savings plan management
When the majority is relying on the pension schemes in the form of ULIPs offered by various public and private insurance companies, as a smart investor planning for your retirement, you need to understand,
- The hidden charges of these pension policies will reduce the rate of returns. These policies are all heavily front-loaded.
- Heavy surrender charges will restrict the transfer of investments to other performing schemes in case of non-performance of the ULIP.
So you need to evaluate various investment options available for retirement.
You may consider tax-efficient and yielding investment options like:
- Accrual-based debt funds.
- Systematic Withdrawal Plans and
- Dividend Transfer Plans.
You need to accumulate sufficient knowledge in this regard. In addition, learning to keep track of them with professional help makes these saving plans work for you.
9) Plan for an income for life
Your retirement plans need to be financial plans to make income that lasts you a lifetime. Pensions or annuities providing best income needs to be safeguarded, as withdrawing large sums from them could end you in financial insufficiency in the final years of your life.
In order to make sure, you don’t outlive your retirement corpus,
- You need to create a very conscious monthly spending plan
- Assess your withdrawal strategy
- Create some part-time income or passive income generating plan.
10) Take professional investment advice that works
Many do realize the importance of professional financial advice from professional financial advisors, but in practice seek it from family, friends and colleagues.
Do you know:
- Are you saving enough money to take care of your retired life?
- How to handle withdrawals from the different retirement investments?
- How to manage that important financial life goal during retirement?
- How to stick to your financial plan for retirement?
- Do you know the Mutual Fund and SIP success stories?
A right financial advisor could give you good investment advice to have a financially secured retirement life.
A final note:
Follow these 10 financial tenets to wise retirement planning. Emerge financially secure for your retired life.
What have you planned for your retirement? What are your views on these 10 doctrines of retirement planning? You can let us know in the comment section.
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