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Dec 22, 2011, 06.03 PM | Source: Moneycontrol.com

Checklist for financial independence

It is important to get your finances in shape. Here are some pointers to follow, which will stand you in good stead after your retirement

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Checklist for financial independence

It is important to get your finances in shape. Here are some pointers to follow, which will stand you in good stead after your retirement

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, Nirmal Bang |

Checklist For Financial Independence

It is important to get your finances in shape. Here are some pointers to follow, which will stand you in good stead after your retirement

Everyone wishes to lead a comfortable life after retirement. They want to see the world, spend quality time with their grandchildren, and above all lead a financially independent life. If you are among the elite who are nearing retirement then the question you need to answer is whether you are prepared for this.
There are a number of issues which need to be addressed like determining your retirement savings, insurance, foreign travel. The list is endless.

Let us run through a checklist which will help you determine whether you are well prepared or whether you need any further preparation. To make the task easy, the checklist has been divided into four important headings.


What lifestyle are you willing to lead post retirement?

You need to answer what kind of lifestyle you would like to lead after retirement – whether it will be luxurious or simple or whether there would be no change in your current lifestyle.

Accommodation: Are you planning to live in the same accommodation or change your place of residence? This is more important for individuals who are staying in office quarters and who have to search for a new house post-retirement. For such individuals it is important to have an alternative accommodation.

Retirement Budget: Based on your lifestyle you can create a tentative retirement budget. This way you know what you are likely to spend most on after your retirement and areas where you intend to save. For example, people tend to spend less on transportation and clothes after retirement. However, the expenditure would increase if you take up a new hobby or you are suffering from some ailment. All these will help you determine your retirement income needs.


Health Insurance: This is one of the most important aspects of your pre-retirement checklist. As one ages, the number of health problems also rise. And if you are not well insured then you are in for some rude shock. Under no circumstance should you let your health insurance policy lapse because if your insurance lapses then it becomes difficult to renew the policy or get a new one after the age of 55. Also note, pre-existing illnesses are covered until two years after taking a new policy.

Long-term Care: This is another very important point to be considered before retirement. With age the chances of you falling sick or getting bedridden are high. Also, people with a history of medical problems should be prepared for this. God forbid, if such a scenario were to arise, then you might be left in the lurch without proper planning. You need to consider this scenario and check your health insurance to see if this is covered under the policy. If yes, then what is the amount of coverage they provide? If no, then you need to be financially prepared.


Asset Listing And Consolidation: You need to start listing your assets that you and your spouse own. This helps you to analyze your current financial situation. Once you are done with the listing, you need to start consolidating your assets at one place that is not more than one or two banks or financial institutions. This way it is easier to keep track of your investments.

Assessing Your Financial Risks: The following points need to be considered while organizing for your retirement income.

1) Longer life span requires savings to last for a longer period of time.

2) Effect of inflation on your savings should also be considered since inflation eats into your savings and hence you need to account for it.

3) An overly conservative asset allocation can put you at the risk of slow growth of your hard-earned money which cannot compete with inflation.

4) Withdrawal rate: Depending on your budgeting, an appropriate withdrawal rate should be selected to meet expenses. An inappropriate rate can exhaust your income sooner than expected and can lead to a financial crisis.

Asset Rebalancing and Allocation: Based on the above points you need to select an appropriate asset allocation strategy. If you are over-exposed to equities or have only invested in debt, then you need to rebalance your investments to have enough security by investing a major portion in debt to boost your investment with minimum equity exposure. Also, a constant review of your investments is essential since post-retirement these investments will last till the end.

Tax Minimization: Your portfolio should be such that it helps you minimize your tax outgoings - an apt investment mix can help you do so.

Estate Planning: You also need to consider how much corpus you would like to leave for your children. Indians generally leave behind an estate for their children. Hence, individuals who would like to leave behind something for their children should plan accordingly and make sure that their retirement savings include that portion too.

Charitable Planning: Many individuals like to take up social service or involve themselves in charitable causes after their retirement. Individuals who are planning to take up any such social cause need to plan and save accordingly besides saving for their retirement.

Informing Your Spouse: It is extremely important that both spouses know everything there is to know about each other’s finances. As you are entering your old age you never know what will happen to you. Hence, if your spouse is well-informed about your finances, he or she will not have to grope in the dark in his or her old age.


Will: If you are planning to leave behind an estate or other assets for your near and dear ones, you need to have a valid Will to avoid complications or legal problems later on. An example of problems created in the absence of a Will is the one between the Ambani brothers, Mukesh and Anil, over the distribution of assets left behind by India’s biggest industrialist Dhirubhai Ambani. Hence, it is always advisable to have a Will in place especially once you turn 50.

Trustee or Power Of Attorney: If your legal heir is a minor then you need to appoint a trustee or a legal guardian who can be trusted with your finances. Also you can give a power of attorney to somebody you trust who can handle your assets until such time as your legal heir turns 18.

The above checklist may not be exhaustive since individual needs vary but it gives a broad idea about things that an individual needs to keep in mind while preparing his financial plan and securing, both his and his family’s future.

If the answer to most of these options is yes, then you be rest assured, your finances are in place and you can lead a secure and an independent retired life. And most importantly, this checklist can be followed by anyone who wants to start saving for his retirement. Why wait for tomorrow when you begin now.

Source: Nirmal Bang

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