Retirement planning is an integral part of the financial planning process. A proper approach to retirement planning becomes all the more imperative, when we consider that post retirement, a person is left without a source of income, while the expenses remain constant. This is likely to produce a disjoint between expenses and income. Thus, it makes sense to plan your retirement while you are still working and employed.
In the Indian context, the importance of proper planning for retirement can be understood from the simple fact that less than 4% of Indian residents over 60 years of age receive some form of pension from their former employers. And a majority of these retirees are from the government and public sector. The persons employed in the private sector and self-employed individuals have to make their own provisions to live a comfortable financial life in the twilight years.
While the process of retirement planning is a detailed one, and requires extensive analysis of the financial aspects, the process can be simplified by following a number of easy steps. An important aspect about planning for retirement is that you should think about more than the mere financial angle.
The following ten tips will definitely reduce your financial burden post-retirement, only if they are followed carefully -
1. Start Saving Early –
Most people make the mistake of putting off saving for retirement in their younger years, especially when they are newly employed. If you start thinking about your retirement plan from age 45, you are already late by 20 years! Starting early allows the magic of compounding to have its full effect.
2. Create a Financial Plan –
Retirement planning is just one part of the larger process of financial planning (What is Financial Planning?). If you have been diligent in proper planning of your finances, the rest will come really easy!
3. Know Your Retirement Needs –
Though it is very difficult to make an assessment of what you will need after retirement, especially if you are in the prime of your youth and earning capability, it makes ample sense to make a rough sketch according to the current conditions. For example, will your children complete their education by the time you will retire ? What about marriage expenses (lets be realistic, this is India!!) of your children? These questions will need an answer in the form of definite amounts of money. You can use a number of free retirement calculators that will help you in this task.
4. Readjust Your Portfolio –
Your financial portfolio will need major reallocations over the time, and as you progress towards retirement. It is advisable to decrease equity exposure, and increase your investments in debt and fixed income instruments.
5. Retire Your Debts –
Get rid of as much debt as possible before you reach your retirement. Special emphasis should be on getting rid of credit card debts.
6. Purchase Health Insurance –
Health remains a major concern with increasing age, and is often the biggest head of expenses after retirement for most retired persons. Purchase of relevant health insurance policies ca prove to be a really smart step in addressing this concern. As an added bonus, you will also get tax benefits!
7. Create a Retirement Lifestyle Plan –
This step basically deals with the other, non-financial aspects of planning for retirement. For example, whether you will move to another city after retirement, or do you plan to engage in some form of financially rewarding activity? Would you like to travel around, or will you earn another degree (yes, you can do that too!!)?
8. Explore Alternative Employment Opportunities –
For a number of people, the very idea of retiring from active working life is abhorrent. Moreover, the current economic scenario also means that an alternative source of earning, even a full time business, is a good choice- of course – if you feel like it. Are you a financial whiz? Then why not take up a consultancy offer, or start a financial advise business? Be creative!
9. Develop a Hobby –
Now that you will have ample time, why not develop you hobby that you always nurtured secretly? Your love for photography, or your writing skills could provide a creative outlet, besides being a valuable source of secondary income.
10. Develop a Healthy Lifestyle –
Do not forget your health, and the absolute importance of living a healthy life. Eat healthy, and exercise regularly. After all – health is wealth!