Moneycontrol
Jan 11, 2017 10:40 AM IST IST | Source: Moneycontrol.com

Reaching 40? You can still start planning your retirement

In your 30s & 40s, but still haven't planned financially for your retirement? You can still begin. Here is how.

Ajay Singh

A galaxy of thoughts invades our mind when it comes to retirement planning. The primary thought that dominates our mind is our assumption to work for the lifetime, which actually an excuse to postpone the matter. But when we start realizing the importance of retirement planning, we might have been surviving on the edge.

But still, better late than never, and you are never late for planning your retirement.

A retirement planning is all about taking the right decision at right time by identifying suitable investment opportunities right for decision making, choosing an appropriate platform for execution and monitoring the progress towards the goal.

• Set a priority

Never make your retirement planning as an option. Rather make it a priority. Don't forget, your retirement planning ensures the lifestyle you are enjoying now. So, ensure that your retirements are in place to enjoy your lifestyle in your upcoming years of second childhood.

• Draw a path

The planning process for a good retired life is not a one-time affair. This goal needs to be upgraded based on your improvised lifestyle, elements of contingencies, consideration of health factor, the expectancy of life etc. Remember that you have to draw a plan not only to your expected life but considering the dependency required by your spouse in your absence. A clearly drawn path will help you understand critical milestones and decide upon the time to retirement, the decision to work after retirement and plan to leave an estate to your dear ones.

• Go steady with step-up approach

Time is of the essence when it comes to retirement planning. Define a contribution that you wish to make for your retirement kitty. The end target may be higher than expected catch up rate with your current savings. To overcome this, you may have to increase your contribution significantly to make up for lost time. Also, understand that your savings will keep increasing with the increase in your income. Choose to take a step-up approach where you define a percentage or fixed amount to be increased each year to catch up with the desired corpus for your retirement. This is a disciplined way to cover up for the lost time.

• Demanding transparency

Retirement planning seems to be a tedious exercise that demands a lot of transparency in terms of defining the corpus to be accumulated, phases of your investments to be made to achieve this corpus till your earning age, identifying the periodical spends on the retirement, knowing where to invest and monitoring the investments on a continuous basis. It is not a simple plan to be drawn on paper but a serious activity that needs to be done with the help of experts or smartly built systems with appropriate algorithms. Transparency on the numbers and a clear cash flow keeps you control of your entire plan throughout the journey.

• Equity is new annuity

Often retirement planning is confused with a goal where one has to invest in conservative instruments like fixed deposits, pension funds etc. It is a trade-off between the risk and returns when it comes to choosing the correct investment vehicle to plan for the retirement goal. Even if you are in your 40’s, you still have more than 10 years to retire. This is considerably a long period where you must look forward to reaping the benefits of market upswing and gain superior returns by investing in equity linked instruments.

The question is how do you do it? It is simple!

Phase 1: Keep investing the required amount in few well-diversified portfolio of mutual funds, suitable to your risk appetite, through a systematic investment plan. This will ensure you better returns over any other traditional investments. Keep monitoring your investments on a regular basis to have an optimized portfolio.

Phase 2: On retirement, you may continue your investments in the same set of funds. At the same time identify the funds you require for the expenses each month and initiate a systematic withdrawal plan (SWP) from these investments.

This combination will ensure that the growth of your capital is faster and you have all the flexibility to pull out funds as per your requirement.

• Health and contingency

While you secure your lifestyle with investments for your golden years, count on taking a good medical plan that covers all the potential health threats post your retirement. Also provision for contingency fund that can take care of your financial well-being in a case of any extreme events.

You are never late to plan for your golden years and the best time to do so is now!

The author is founder of 5nance.com
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