As we are discussing about the importance of ‘retirement planning’, in the last part we saw how & why should we consider planning for retirement.
Now when we know the reason, we should also consider how to plan for it….
- Start early:
Investing journey has one important feature i.e. it is more rewarding when we start early!
As we know, initial working years pass by swiftly in a struggle to get desired job & profile, settling in a business or profession, increasing standard of living & fulfilling many responsibilities.
But, in all this, we should start regular investment for our retirement even if it is a small amount.
Starting early gives us an edge in choosing suitable instrument even if it is high risk rewarding like equity, flexibility to choose & change it while reviewing & most important to start investing with a small amount.
- Count on your monthly required expenses:
Our parents & even grand parents have always been mindful about spending money. I personally have been watching my father writing down our monthly family expenses in his diary almost every day.
This has enabled our families to spend within our means & also to make a budget.
Today, many of us don’t even know how much money gets spent on essential things like medicines, grocery etc & how much do we spend on shopping & eating out.
It’s better to start accounting for our monthly expenses regularly. This will give us an idea about how much is required for our essential things every month.
This amount if required to maintain our standard of living throughout even after retirement, then we should invest monthly accordingly. For this, we should simply consider & add general inflation to it.
e.g. today, if we are spending Rs 50,000 monthly for our family, inflation is 7%, 30 years are left for retirement, then with this, the amount will be Rs 6 lakhs (approax) p.a.
Now imagine how much your retirement corpus should be to be able to sufficiently pay off the required expenses post retirement on a monthly basis.
This gives an idea & highlights the importance to start monthly investments.
- Choose regular mode of investment:
Investing for any long-term goal requires ‘consistency’ & ‘discipline’. For our retirement planning, we should choose ‘monthly investments’ in the form of mutual fund SIPs, employee provident fund, voluntary provident fund etc along with regular investments like investing in public provident fund.
Though every instrument differs in the form of tax implications, risks, returns, when we invest in them suitably, they help us better.
- Take a regular review:
For any goal-based planning & investment, ‘regular review’ is a must. If you have really started early investing for your retirement then you can choose to review once a year. As soon as retirement comes closer, you have the flexibility to change the asset allocation, increase the frequency of the review.
Review can help you to change the investing mode, strategy & instrument when & if needed because your risk appetite, age, market performance, returns etc keep on changing.
- Take into consideration tax implication:
For the goal of retirement planning, suitable instruments are ‘systematic investment plan’ in suitable mutual fund, public provident fund, employee provident fund, voluntary provident fund etc. They all have different tax implications.
Early we start investing, we can choose & pick suitable instrument & also can save on taxes where applicable.
In the long term, this can save much on taxes too.
- Never buy any product which is a mix of investment & insurance:
Nowadays, we come across many products which promise us to pay certain amount of pension post our retirement when we invest regularly for a certain period of time.
Some products even offer life insurance along. Many products are termed as ‘retirement plan’ which are market linked.
Please note that, such products carry huge costs & charges. They neither offer adequate insurance cover nor provide suitable pension amount post retirement which can be sufficient to cover monthly expenses.
So, please choose ‘pure investment instruments’ like mutual funds, employee provident fund, public provident fund, voluntary provident fund etc.
They invest our whole amount towards the goal, charges are very less & they offer total best possible returns on our investment.
Buy your personal health insurance:-
If we are working in a private sector many a times employer offers us with a ‘group health insurance’. Cheaper it is & also covers our family so many people don’t really buy any additional health insurance policy. But please note that the employer group health insurance cover is available till the time we work for them!
If anyone changes the job, then such health insurance cover & terms do change along with it. Later in working life, if anyone tries to buy personal health insurance cover, then due to increase in age, health history if any, one can find it difficult to get desired terms & premium while buying it.
So, its better to apply for the one early for self & family. Personal health insurance cover works better & supports us even more post our retirement.
So, do initiate a purchase of personal health insurance policy.
We all work for a better tomorrow & its our duty to make sure that when the ‘tomorrow’ comes, we do live it fully!
Retirement life is that ‘better tomorrow’ which we all seek so that we can live with ‘financial independence’.
How to live with dignity & financial independence post retirement, we will look in next part!