Let’s begin with two real life stories!…
We lost one of our close & beloved relative suddenly a few months back. The shock of his death & responsibilities of the entire family suddenly came on the shoulders of his brother.
After lot of discussions, ifs & buts, he finally arrived at a decision to take ‘voluntary retirement’ from his services at metro city where he stays & settle down at his hometown. This could help his family to face the situation emotionally together, so everyone agreed to his decision.
In another incident, I met a person for his own retirement planning. He was about to retire from his high paying job from one of the MNCs. The amount of retirement corpus he was entitled to receive was quite huge. Though he has no any responsibilities, his portfolio was a total clutter involving number of insurance policies majority of them were market linked, real estate properties & lot of useless instruments.
Two situations, though different from each other, one thing is common that, ‘it doesn’t matter what age & what situation you retire from your employment, you need to have ‘retirement planning’!’
When someone opts for VRS, then no of years post retirement are more. This means though he/she receives good amount of retirement corpus, he/she has to survive longer on the same.
Even if you retire at natural age & receive good amount of corpus, you need to make sure you pay attention to asset allocation properly & not fall prey to any mis selling.
For all those, who themselves are about to retire or their loved ones are, following will help you to plan their ‘post retirement journey’ more meaningful.
Take a stock of the situation:
Nobody but you can know your financial situation better when you are getting retired. Like-
- How much loan do you have to pay off?
- how many family responsibilities to look after?
- How much is your monthly household expenses?
- How much monthly contribution you can expect from your children if they are going to stay with you
- How much liquid investments do you have & how much is stuck into non liquid assets like property?
- If your spouse is working too, then what age she will retire? How much is the expected retirement corpus receivable?
- Will you continue to stay where you are or plan to migrate somewhere else?
Many aspects like this are better known to you so better you sit along with your spouse, think & note the same. This will give you an idea about setting up a monthly budget, investing retirement corpus, choosing instruments, allocating assets accordingly.
Make a budget:
Today majority of the population retire with no ‘fixed pension amount’ in hand. This means they need to survive on the corpus they receive at the time of retirement.
If you or spouse are among the lucky ones to be eligible to get fixed pension, then your burden is somewhat reduced. Otherwise, you need to make a provision for your household expenses too from the corpus, that too for minimum 20 years.
We see increase in the life expectancy due to advanced medical facilities. This makes post retirement life longer, ranging from 20- 30 years.
Its better to draw a monthly budget when you retire. Expenses related to you, spouse & home should be listed in fixed & variable heads. This will make you have a control on your spending.
Always remember, monthly expenses are not the only expenses you need to pay for. There will some adhoc expenses like medical expenses for you & spouse. You need to make provision for that as well.
Inflation always eats away our returns no matter whether we are earning or have got retired from our employment.
Budget helps us acknowledge its impact more.
Write down your goals:
Yes, write down your goals! Though you are retiring from the employment, you still can have your short or medium-term goals.
All these years, you have been busy taking care off family, expenses, fulfilling dreams of your children but now its time to set some goals for you too.
Plan for a trip or a vacation you were waiting for, opt for some charity if you wish to, set goal to make some regular donations if you aim for or join a club with like minded people & look for their yearly fees….
Your goals can pave the way for your investments & it will be easy for you to choose among many available instruments
Pay off the debts:
For this or that reason, we all take loans. Being a ‘karta’ or a responsible person, if you have taken some loans for your family or home like any home loan, vehicle loan, short term personal loans then consider paying them off.
When you retire, ideally you should be free from all the worries about paying EMIs, managing dates of loan repayments.
From the retirement corpus you receive, its better if you prepay the remaining loans to the best possible extent.
Rework your insurance portfolio:
Many people buy insurance policies in numbers & varieties ranging from endowment plans, children plan, retirement benefit plans, ULIPs etc.
Many of these policies are market linked & have heavy premium to pay. By the time you retire, its generally assumed that all your family responsibilities are over. If yes, then please surrender or ‘paid up’ all the unwanted insurance policies.
Ideally a person should have suitable ‘term insurance’ policy upto the tenure where he is shouldering all the family responsibilities.
Continue with only ‘term insurance’ policy if you still have dependents on you & some responsibilities to look after.
Along with ‘term insurance’ policy, please continue with your ‘personal health insurance policy’ for you & spouse.
If you have still not applied for it, try to apply for the one. This time due to age, health history if any, you may get some stringent terms & conditions along with higher premium. Check for the best suitable policy available for you & spouse.
This way, as per the need, you will have only ‘term insurance’ policy with you along with suitable health insurance policy for you & spouse.
Divide responsibilities among family members:
If not all but do allocate responsibilities among family members once you retire.
If you come from a business background, then its wise to start allocating titles & responsibilities among your children & other family members as you retire. This way, you can keenly observe & guide them as to how to handle them in best way possible.
This will establish a ‘sense of belonging’ in new manner among your family members & they will start behaving more responsibly.
You can still have your ‘Hold’ but still can enjoy the things which you couldn’t do when you were actively working.
The amount of retirement corpus you receive must be thoughtfully allocated among other asset classes which are suitable for you.
Asset allocation means dividing or allocating amount of money for investment among different suitable investment instruments as per your goals & investment tenure.
e.g. You can keep 20% for your short term expenses & contingency, 30% for wealth creation in equity & related instruments, 50% to use for your monthly regular expenditure.
There is no any thumb rule as how should be your asset allocation. But please decide your own & invest accordingly.
This will help you to select suitable investment instruments.
Make your financial records straight:
Its important to record all your assets, liabilities, cashflows, investments made, loans if any etc from time to time.
Your spouse & children must be aware of all these records.
Along with these records, you should also make nominations on all the instruments, assets, policies with you.
Your spouse should be your nominee in major sense & must have all the knowledge about it.
Never fall prey to any mis selling:
‘Senior citizens’ or ‘retirees’ are soft target customers for people who ‘sell investment instruments or insurance policies.
They present smartly & offer attractive returns with safety which many a times make senior citizens invest in them.
Please note that, a person who is working in ‘fiduciary responsibility’ & in ‘unbiased manner’ can only help you to advise on your personal finance in right way.
Approach them & get it streamlined.
Make a will & register it:
Making a will is often considered as emotional decision & carries sense of ‘division’ when we heard of it. Its true that, any ‘will’ can divide the assets, investments & belongings but it is better to make this ‘division’ instead of ‘dividing emotions & false sense of ownership’ among the loved ones after the person is gone.
Its legal & easy to get assistance when a person wishes to make a will. You need to register it along.
Registered will cleans out all the doubts about ownership rights of the property, investments made, jewellery, expensive belongings if any, ownership of a business or profession & allocation of responsibilities too.
For a person from business background, it helps to avoid a ‘mess’ which could be possibly created if things are not clear among employees, stakeholders, partners & family when he/she is no more ‘to clear the air’.
I always say, ‘retirement is the evening of our life’. Everyday, sun spreads magic colors & shades when he is about to set. We love it when we see it in leisure.
‘Retirement planning helps us to enjoy all the magical shades of our life when we retire & start new innings!