Jul 31, 2013, 06.25 PM | Source: Moneycontrol.com
Financial planner and trainer Vivek Sharma presents a checklist to find out whether you are on the right track in planning for your retirement.
Vivek Sharma (more)
Financial Planner & Trainer, | Capital Expertise: Mutual Funds ,Fixed Income
Retirement planning is a herculean task. The magnitude of the post retirement corpus requirement is so huge that it cannot be achieved without smart planning. While creating adequate corpus for retirement planning requires meticulous investment strategy, it is equally important to check whether retirement planning is on right time path or not.
With increasing inflation and ever increasing needs, one needs to ensure that neither the creation of corpus nor the timelines for creation of corpus gets missed. In order to watch whether retirement planning is on track or not, there is a need to develop checklist for retirement planning. Here is a checklist to see if your retirement planning is on right path or not:
You must be owner of the house by 45
Age of 45 is a critical benchmark for retirement planning in many contexts. One of these is the ownership of the house where you stay. You need to ensure that by the time you turn 45, the house becomes loan free.
This will help you build a good corpus from 45 onwards till your retirement, even if you invest in debt. While there is nothing sacrosanct about this age, you can use it as a benchmark to put yourself in a comfort zone.
In order to ensure this, house where you wish to stay should be bought during initial years of job or starting of profession. One of the important costs in day to day expense management is the cost of rent, in case you don’t own a house. By owing a house, you will be able to take care of this aspect.
Create your health insurance coverage comfort by 45
Healthcare expenses are very high post retirement. You need to build health insurance coverage by a particular age. Buy an insurance plan which covers you up higher costs on health front. For instance, in today’s scenario it won’t be unfair to look for coverage of atleast 25 lakhs for health coverage.
There are many insurance companies which have started providing high insurance coverage now. You need to scale up your insurance coverage so that by the time you reach 45 years, you have adequate coverage. Healthcare costs can have a killing effect on your financial planning process if they are not managed well.
Your investment corpus should be ten times of annual expenses by the age of 50
This means that if you annual expenses are 5 lakhs per annum by the time you reach age of 50, you should be having a corpus of Rs.50 by this age. The creation of this kind of corpus will give a comfort and help you build further corpus without taking much risk from 50 years onwards.
This is critical as the risk appetite reduces substantially after the age of 50. This can be achieved by increasing savings year on year and making investments so that atleast 20 percent growth in retirement corpus is seen year after year.
Keep on watching growth in your retirement planning corpus year on year and also check if you are missing any of your milestones that you have set. Any slippage would require change in strategy. Ensure that you achieve targets always.