Planning your retirement is essential and, at the same time, a pretty complicated process. That is why everyone should do it at an early stage of their professional life. We say this because every individual deserves a life after their retirement where they can rest. After retirement, people like to spend their sunset years in leisure on the hills or the beach without any burdens or tensions. But to do so, you must have a good retirement plan!
Retirement planning can be very complicated because you might have so many questions in your mind like how much corpus you should build or where should you invest. But don’t worry, we have answered all your questions and formulated a list of 10 things you should keep in mind before investing in a retirement plan-
- Figure out how much money you require for your retired life- Before investing in any plan, you should work out how much money you require for your post-retirement life. We are not saying that you should know the exact figures, but a rational assumption will work. The most crucial aspect to keep in mind is ‘inflation.’ Take the inflation costs into account, and you must take inflation higher than the current rate. Also, it is crucial to be conservative in estimating your long-term returns. Lastly, keep in mind that your retirement plan is not static or stationary. Therefore, keep evaluating it every few years.
- Start your retirement plan early- You stand a chance to save more if you start early. Planning your retirement at an early stage in your life will help you buy more time to build a decent retirement corpus. You need to identify how much canon you wish to develop and understand your own financial goal.
- Keep a dynamic mix of equity and debt- If you have more than 20 years for your retirement, you can invest in inequities. However, if you have progress closer to your retirement age, you should shift into debt and then towards liquid funds. You are adjusting and making improvements as you age, progressively essential for a great retirement plan!
- Keep the taxes in mind- Your retirement money needs to be considered in post-tax terms and not in pre-tax. If you compare equity and debt funds on a post-tax basis, it is essential to note that debt funds have the advantage of indexation on Long Term Capital Gain Tax, but equity funds do not get that benefit.
- Divide the retirement corpus between lump-sum money and regular annuities- If you are planning to stop working once you get your retirement, you need to make sure that your retirement money can fund your monthly expenses. Also, it has to manage your emergency and social requirements. Hence, your retirement plans should have a balance between lump-sum flows and regular annuities. Therefore, plan your allowances to generate optimal returns for yourself.
- Post-retirement income sources- After your retirement, your monthly salary would no longer be credited to your account. But you might have other income options post-retirement. It can include a pension from your old occupation, or you might get hired as a guest teacher in a school/college and receive income for the same. Along with regular annuities, this additional income will help you for emergency purposes.
- Get rid of every debt that you may have before retiring- Debt has always been linked with stress and depression, and it’s even worse when you are retired. Your retirement plan must aim for a debt-free retirement. Liabilities like home loans, personal loans, and multiple credit card loans should all be paid off before you retire. If that is done, you would never face a liquidity crunch, nor would you have to worry about losing your assets that are funded. It can’t be stressed enough that it is essential to start your retirement with zero debt.
- Even after you retire, you require insurance- You must continue your ongoing life cover even after retirement. It is because these insurances give a sense of security to your family and spouse. Also, adequate medical insurance is essential for you and your dependent family members post-retirement to cover any medical emergencies. Your assets and property also need to be ensured to avoid any unforeseeable problems.
- Do not get attracted by lucrative schemes- There is no denying that saving the maximum amount of money will lead to a smooth-sailing retirement, but that doesn’t imply that you should invest all the money you have at the moment. No type of investment is considered to be entirely safe! Hence, you must invest within a specific limit. Also, do not get lured by those schemes that offer extraordinarily high-interest rates. Invest within your limits and regularly do it because the power of compounding is very beneficial!
- Better late than never: You can start your retirement planning at any age- More often than not, while people are at their peak financial age, they do not plan for their retirement. Yes, it does happen with a lot of people. However, it is advisable to start early because you would have a lot of time to plan and invest. But as we all know, it’s better late than never. Individuals can start retirement planning whenever they want. But do keep in mind that if you start saving or investing just before your retirement, you need to make sure that you save a lot. It is because you will have very few years in your hands.
Final words: We hope you keep the above pointers in mind while planning your retirement and investing in schemes or plans! Always remember that a little patience and smart investing are the two main components of building a decent amount and have fun for your post-retirement life. Also, investments do not grow overnight, so we advise giving your assets some time to multiply and grow.