If there’s one thing that you don’t want to do twice, that would be retiring. Imagine having to go back to work after you’ve called it quits. There are many such stories where people have to work after retiring and the most common mistake for this situation is lack of proper planning.
Planning your retirement is something you do not want to take lightly. Retirement is inevitable as death and you have to plan well for it. Here’s a checklist to help you in your retirement planning. These are some basic things one need to start doing while planning for retirement.
Calculate your assets
You need to know where you stand financially. Evaluate your budget. calculate every debt, liability, savings balance, income stream and insurance policy you have. Create a worksheet that you can adjust on a regular basis. This will assess your current financial situation and help you plan accordingly.
A simple thumb rule to track retirement corpus is using multiply by 25 rule. For example, if you want to withdraw Rs. 6 lakh per year from your retirement portfolio, you need Rs. 1.5 crore corpus in your retirement portfolio. (Rs. 6 lakh x 25 equals Rs. 1.5 crore) while the difficult task is to know how much money you will need per year after retirement, but this simple calculation will at least give you something to measure your current status against. There are many sophisticated calculators available online, use them.
Build an emergency fund
Before you take any major financial decision, you want to be sure you’re protected if things don’t go according to the plan. Emergency fund will cover you in the event of personal misfortune, and it can also make up for delays in the start date of your monthly cash-flows after retirement. Six months’ worth of your daily expenses should be enough to cover you in case of emergency. Remember to include expenses like insurance premium, EMIs and your school/college fees of your children. Keep your fund somewhere safe and separate from your other savings so you aren’t tempted to spend it. You can park this in liquid or a low duration Mutual Fund.
Pay off all your loans
Ideally you should enter retirement without any debt. Since your income is likely to decrease, any fixed payments will start to take up a larger share of your expenses. If you’re nearing retirement, it’s time to take a look at the your loans. Plan your loan repayments well, starting with highest-interest-rate loans. No matter what repayment strategy you choose, the most important thing is sticking with it. Map it on a calendar and track your progress.
Figure your retirement needs.
Before you can retire, you have to decide how you want to retire. Consider where you want to live, whether you’ll have a job and what will be your expenses. Try to be realistic in terms of retirement years. This can be difficult to predict, but you can always refine your plan later as you progress towards retirement.
You should also create a timeline to show when different streams of income will begin. This will help you manage cash flow and determine how much you need to save to retire. See how your pre- and post-retirement expenses and adjust it for inflation. The more realistic you are, the better prepared you can be.
Get yourself a health insurance.
Healthcare can be one of the biggest expenses you’ll face during retirement. Get a health insurance plan that covers you the longest after your retirement. Things get trickier – and more expensive – if you plan to retire early. Make sure your insurance doesn’t lapse when you need it most. Know the terms and conditions of your coverage as well as how much you can expect to pay in premiums, deductibles, co-pays and out-of-pocket costs, make provisions for such costs in your retirement corpus.
Review your investments.
Constantly review your investments. Keep in mind that your risk tolerance may change as you age and you reach your retirement. Look at your asset allocation and slowly start moving out of your risk assets into low risk stable income assets. Start planning your withdrawals from your investments and accordingly alter your investment mix. You should make your decision based on what’s both tax-efficient and what you feel most comfortable with.
Retirement is a time for personal growth, which becomes the path to greater personal freedom…