10 Incredible Things That Guarantee a Stress Free Retirement

The biggest financial mistake a person can make is not having a retirement financial plan

When to begin your financial planning for retirement?

It’s never too early to start planning for your 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. Following these 10 essentials for wise retirement planning mentioned here could give you sure ways to have a happy retired life. Take a look at the 10 doctrines of wise retirement planning:

1.An important ingredient for a hitch-free retired life

2.That’s a small change in perception, a giant leap in your retirement planning

3.A  proactive retirement planning strategy, you will never regret

4.Beat the inflation before it beats you

5.A little mistake could ruin your Retirement Corpus almost overnight

6.Keep your debt under control

7.Maintain a well-balanced Asset Allocation

8.The critical deciding factor

9.Realize you need to be vigilant about sources of retirement income

10.Educate yourself about retirement savings plan management

• Bonus Tip 1: Plan for an income for life
• Bonus Tip 2 Take professional investment advice that works

A Final Note

1)An Important ingredient for hitch-free retired life: Provide for contingencies

A quick formula:

Contingency Fund = 6 * Monthly expenses

Quick Tip:

• 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 a 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 a 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 retirement life of a minimum of 25 years.

So it is better to plan for the additional years and avoid living frugally in old age.

How are you going to plan for long life after retirement?

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 require more savings for retirement needs.

Be it any form of early retirement, they can be put into two categories. They are either forced early retirement or voluntary early retirement.

Although forced early retirement in itself has risks, voluntary early retirement has some major risks too. To be precise, it has five. Read “5 Major Risks of Early Retirement” to be aware of and how to overcome them.

i) Voluntary Early Retirement

Voluntary early retirement can be fun and the beginning of fulfillment in your life. It allows you to give priority to personal responsibilities over other things. And most of all, voluntary early retirement gives you the chance to restore your free will.

But would it all be possible to do all these things if you retire early without any plan for your financial needs?

You can find your answer here:  How to plan for your early retirement in India?.

ii) Forced Early Retirement

Unlike voluntary early retirement, early retirement can be grim too. It is when you are forced to retire early.

Your life can get really dark with a financial crisis along with the crisis that is forcing you to retire. Here is a list of “Alarming Events That Can Force You to Retire Overnight”. You can also find the 10 ways to face forced retirement gracefully.

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 us 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 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 to take care of all your needs in 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.

You can beat inflation by either accumulating an even larger corpus or by finding the right inflation-adjusted corpus and investing it wisely. One of these two ways is practically possible. Find out which one and how to stop inflation from murdering your retirement corpus  for a stress-free retirement life

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 healthcare 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) Keep your debt under control

As quickly as possible, pay off your debts. Settling off debt on schedule is a vital aspect of good financial hygiene that everyone should practice, whether or not they are planning for retirement. If you have additional loans, you risk depleting your savings and hindering your ability to accumulate money at the rate required for a comfortable retirement. 

Unpaid dues are liable to a high-interest rate if not paid for a long time. Retirement is a time in your life when you will no longer be responsible for paying off your debts. As a result, you must pay off your debts before they become unmanageable.

7) Maintain a well-balanced Asset Allocation.

Smart asset allocation is a critical component of prudent retirement planning. Asset allocation is the process of allocating funds to several investment vehicles in order to build a sufficient corpus for your retirement. The money you hold in your hand is only a tool for creating riches. You have a variety of options available to you, including gold, fixed deposits, real estate, mutual funds, and the stock market.

Smart steps while allocating assets for retirement planning:

• As you get closer to retirement, start making low-risk investments. As you get closer to retirement and your goals, change from equity funds to bond funds to focus on a regular income, increased liquidity, and reduced risks.
• Don’t limit yourself to a particular asset class. To increase your safety, diversify your investments across asset classes.
• Even within the asset class, there should be a focus on risk management. To reduce the negative impact of capital loss, combine equity investments with SIP contributions.
• Buying a smaller house and saving money is preferable to having an expensive maintained house in one’s older life.

8) The Critical Deciding Factor: Provide for your spouse and dependents who may outlive you

Inevitably,  this need should not be overlooked. If your dependents are younger and healthier than you, then they will possibly outlive you.

Creating 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.

Smart Steps:

• Estimate how many years your dependents outlive you.
• Create a provision for them, for those many years

9) 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.

Smart Steps:

• Create a checklist of the expected income from different sources of income after retirement.
• Note down the periodicity of the income (monthly/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.

10) 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.

You can watch the video below, which highlights the key features of ULIP vs. Mutual Funds. After watching this video you will surely be able to make an informed choice in your investment towards retirement savings.

See here why you should say NO to these readymade retirement plans. It will also give you insights into how you can make your customized retirement plan that fits only you. Customized retirement plans give you the 100% transparency that other readymade plans can never give.

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. Once you understand the basics of creating your customized retirement plan, you will have to do only one thing. Follow the basics. Here’s an article that can guide you in Create Your Customized Investment Strategy for Indian Retirees.

In addition, learning to keep track of them with professional help makes these saving plans work for you.

Here are 2 Bonus Tips for a stress free retirement life

Bonus Tip 1: Plan for an income for life

Your retirement plans need to be financial plans to make an income that lasts you a lifetime. Pensions or annuities providing the 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.

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.

How to Generate a Passive Income During Your Retirement?

“Rich people always spend their life in building a passive income while its fool’s plan to earn from an Active Income throughout Life” 

The concept of passive income is not new but unfortunately, most people don’t understand this concept. So, they can’t effectively apply this concept for their benefit. Therefore, they have to work harder and harder throughout their life until they get retired.

First of all – What is Passive Income?

Well, passive income means ” An income that passively comes to you without your effort or without depleting your life energy. Passive income is one for which your hard work is not required. If you are doing a job or you are a professional like a doctor, lawyer, or CA then the income from these sources is Active because to earn this income you have to work hard and your presence is required. In passive income, your presence is not required”

So, what are the types of passive income during retirement?

1) Fixed Deposits / Debt Mutual Funds / Pension Funds:

This is the commonest source of passive income suppose you have Rs. 1 Crore in your Fixed deposit and the rate of interest is 6.5% after cutting taxes then you will earn Rs. 50,000 to 55,000 per month passively without doing any work. 

So, this is your passive income because you don’t have to work to earn this. The main disadvantage of this type of passive income is that you can’t beat inflation. Today you earn Rs. 50K per month but after 10 years because of inflation the purchasing power of today’s 50K will be reduced. So, you need to add more capital to the fixed deposit every year.

2) Rental Income:

Another type of passive income is rental income. You have invested your money into a residential or commercial property and now you earn a rental income every month. This is another type of passive income. 

The advantage of this kind of income is that the rental income increases every year with inflation plus your property will also have a capital gain. So, you will enjoy both capital gains and cash flow increasing every year. This is the kind of passive income that can beat the inflation.

The disadvantage of Real Estate Property is:

• The Rental income will be 2-3% of the cost of the property. It is a very less ROI.
• Maintenance expenses, Property tax, and Water tax brings down the net income.
• There can be a dry period without rental income.
• It is an illiquid asset. Partial Withdrawal during an extreme emergency is not possible.

3) Dividend or Portfolio Income:

This is another kind of Passive income in which people have invested in stocks or Mutual Funds and build a portfolio over years and decades and now the portfolio becomes large enough to throw passive income in the form of Dividends. 

4) Businesses:

Some people have developed or invested in someone else’s business. so now his/her presence is not required and this business provides passive income.

So, the above are a few ways to generate passive income for you.

5) Systematic Withdrawal Plan from Mutual Funds:

This is a hassle-free and workable way for many. During your earning years/accumulation phase, accumulate in equity mutual funds via SIP – Systematic Investment Plan. During your retirement years/distribution phase, withdraw via SWP – Systematic Withdrawal Plan.

• This will help you generate inflation-beating returns.
• SWP is the most tax-efficient way of generating Passive Income.
• Your capital also has the potential to grow in this plan.
• Highly liquid investment. Partial Withdrawal is possible.

People who want to retire early (early means in their 40s or 50s or even earlier than this) have to develop passive income. They have to develop enough passive income so that they can live the rest of their life without working. They have to develop a passive income in a manner that can beat inflation. It’s all about maintaining purchasing power. They have to develop multiple passive income sources like the rich do.

So try to understand the concept of “Passive Income” and start developing it as soon as possible. This is the key to your financially successful retirement!

Bonus Tip 2 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.

Can they be as good as a professional financial advisor?

Of course people around you work in the best interest of you, but no amount of best interest can amount to professionalism. If you are too reluctant to hire a financial planner here are 5 Realistic Reasons to Hire One. Or you can click on the card at the top of your screen to “Schedule Your Free Consult”.

You should also know How to Choose the Best Financial Planner for Your Retirement; so that you don’t have to hop between services. This will be crucial in keeping your portfolio neat and focused, as you near your retirement.

Finally, you must know the important questions to ask a financial planner before retirement. This post should give you an idea about the “Vital Questions to Ask a Financial Planner Before Retirement”. This will help in two ways: Help you to exploit the potential of your financial planner and Help your financial planner to assess your needs in retirement.

Auxiliary Essentials For NRI Retirement:

To complement the retirement essentials seen above, as an NRI, you may need special care to plan your retirement. Especially in the case of finances, NRIs face more complexities. Things like regulations, narrow time frames, geographical constraints, and, investment options pose difficult challenges. Find out here “What Every NRI Ought to Know about Retirement Plans?”

But is there something that you should ask yourself before all this? To help you understand your own needs better.

• 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?

The right financial advisor could give you good investment advice to have a financially secured retirement life.

A Final Note

These 10 financial tenets to wise retirement planning is going to be very effective if you follow them with discipline. Emerge financially secure for your retired life.

Check out your Retirement corpus with the help of this Retirement Calculator. 

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.

To have a peaceful retirement, having a futuristic financial plan for retirement will be of great help. If you are REALLY interested to create a workable financial plan for retirement, then you can take advantage of your free 30-minute consultation with a professional by clicking the image below.