Home » News » Personal Finance»Retirement
Jun 22, 2013, 05.21 PM | Source: Moneycontrol.com

Retirement planning: 10 things to be done everyday

PV Subramanyan emphasises on the importance of retirement planning and how one needs to start really early on in their lives to plan towards a wealthy retirement.

PV Subramanyam
subramoney.com

When it is the time for you to retire, will you be able to afford it? Every person you see working beyond the age of 59 is worried about their retirement. Almost all the research conducted on the subject over the last few years shows that most individuals are unable to demonstrate financial readiness for their retirement years.

The Oasis research says the average balance in the provident fund is only Rs. 24,000. If you do not have an indexed pension, you need to create a sizeable corpus for your retirement.

Also read: Find out: 4 common mistakes in retirement planning

This only serves to underline the fact that saving for retirement is a dynamic, continuous and challenging process that requires careful planning and follow-through.

Running out of money is a serious worry. Also, we do not want to be leaving waving the last Rs. 100 note as a tip for the undertaker. If it costs Rs. 35 to reach my office will we dare leave our house with exactly Rs. 35 in our purse? We won’t.

One would be carrying Rs. 200 + ATM card + a credit card. Similarly, in case we need Rs. X for retirement; we may need to keep say 2X if not 3X just in case.

Retiree’s spending pattern changes completely because of fear. One client refuses to take a taxi (he can afford to BUY a taxi every month!) because he feels it is expensive. 

Fear is something which is easy for an outsider like me to see, but the person experiencing it may not even realize this. I know a 81-year-old with a net worth of Rs. 2 crore.

The person’s living expenses is of Rs.2 lakh a year; dividend income of Rs. 5 lakh. That person keeps telling me, “I am worried to withdraw from my capital what should I do?”
 
On the one hand I meet teenagers spending like there is no tomorrow and on the other hand here is a 78-year-old worried about withdrawing from his capital! 

Here are some helpful tips that should help you on your way to a comfortable retirement.

1. Start soon; I mean TODAY

It is better to start saving at an early age, but it is never too late to start. Even if you are already close to your retirement years - because every rupee saved helps to cover your expenses.

If you save Rs.2000 every month for 40 years at a rate of 12 percent, you will have saved significantly more than an individual who saves at the same rate for 10 years.

Also, keep in mind that asset allocation will become increasingly important as you get closer to retirement. This is because your volatility tolerance generally decreases as the number of years in which you can recuperate any losses goes down.


2. Treat Your Savings as an Expense 

It is as real as death and taxes, so, be prepared.

You may have your salary credited to a savings account and have the amount scheduled for automatic debit, to be credited to a retirement savings account on the same day the salary is credited.

3. Save as Much as You Can in a Tax-Deferred Account

Contributing amounts earmarked for your retirement to a tax-deferred retirement account deters you from spending those amounts on impulse, because you are likely to face tax consequences and penalties.

All retirement accounts have some form of penalty on withdrawals either in the form of a lock-in or in the form of the same being added to your income. Examples of this include PPF, pension plans, equity funds that you earmark for retirement, etc.

Look at this positively the lure of current consumption is too strong hence such measures are a must. The most important thing is whether it is a insurance plan or ELSS you pay no tax even on withdrawal so let it grow unhindered by income tax.

4. Diversify Your Portfolio

You cannot put all of your eggs in one basket holds true for all assets. Putting all your savings into one form of investment increases the risk of losing all your investments, and it may limit your Return on Investment. As such, asset allocation is a key part of managing your retirement assets.  

Proper asset allocation considers factors such as the following:

• Your age - this is usually reflected in the aggressiveness of your portfolio, which will likely take more risks when you're younger, and less the closer you get to retirement age

• Your volatility tolerance - this helps to ensure that, should any losses occur, they occur at a time when the losses can still be recuperated

• Whether you need to have your assets grow or produce income

5. Consider All Your Potential Expenses in Your Financial Plan

When planning for retirement, most people I meet underestimate expenses for medical costs, nursing, and other voluntary expenses like employing a cook, maid, hiring a vehicle to get around, travel, gifting, etc.

When deciding how much you need to save for retirement, make a list of all the expenses you may incur during your retirement years. .

6. Budget

Saving a lot of money is great, but the benefits are eroded or even nullified if it means you have to use a credit card to pay your living expenses. Therefore, preparing and working within a budget is essential.

Your retirement savings should be counted among your budgeted recurring expenses in order to ensure that your disposable income is calculated accurately.

7. Periodically Reassess Your Portfolio

As you get closer to retirement and your financial needs, expenses and risk tolerance change, strategic asset allocation must be performed on your portfolio to allow for any necessary adjustments. This will help you ensure that your retirement planning is on target.

8. Reassess Your Expenses and Make Changes Where Possible

If your lifestyle, income and/or fiscal responsibilities have changed, it may be a good idea to reassess your financial profile and make adjustments where possible, so as to change the amounts you add to your retirement nest egg.

For instance, you may have finished paying off your mortgage or the loan for your car, or the number of individuals for which you are financially responsible may have changed.

A reassessment of your income, expenses and financial obligations will help to determine if you need to increase or decrease the amount you save on a regular basis. And keep revisiting your life insurance portfolio.

9. Consider Your Spouse

If you are married, consider whether your spouse is also saving and whether certain expenses can be shared during your retirement years.

If your spouse hasn't been saving, you need to determine whether your retirement savings can cover not only your expenses, but those of your spouse as well.

10. Work with an Experienced Financial Planner

Unless you are experienced in the field of financial planning and portfolio management, engaging the services of an experienced and qualified financial planner will be necessary.

Choosing the one who is right for you will be one of the most important decisions you make.

What we've discussed here are just a few of the factors that may affect the success of your retirement plan and determine whether you enjoy a financially secure retirement.

Your financial planner will help you to determine whether you should consider other factors. As we said before, starting early will definitely make the task ahead easier, but it is not too late to adopt some of these practices, even if you are already retired.

ADS BY GOOGLE

Ask the Experts

Get your Personal Finance queries answered

  • Q

    Interest rates are going to go down. And all my fixed deposits will be maturing next year. I will have to renew my fixed deposits next year at lower rate of interest. What is the way out?

    A

    Interest rates keep fluctuating due to various micro- and macro- economic factors. There is never an ideal rate of interest. In a high inter...

  • Q

    If I put Rs 2 lakh in PPF, how much tax rebate I will get?

    A

    As per the existing guidelines and rules a person cannot deposit more than 1.5 lacs in one PPF account. However you can deposit money in the...

  • Q

    I want to buy online term life insuance plan. Which is the best one? Should I go for single premium or regular premium policy?

    A

    Single premium term insurance policies don?t make much sense. Why pay such a large amount at one go when you have the option of paying in sm...

  • Q

    I want to invest some money with at least ten years view. I dont want share market risk. Can I invest in NSC? Is there any other investment option?

    A

    NSC or National Savings Certificate is a safe investment scheme offered by the Central Government. It is an ideal option for investors with ...

  • Q

    Is it a good idea to invest in asset allocation funds? if yes, please suggest some good fund to invest money. I am 35 years old and can invest Rs 10000 per month.

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    My CA says that I have to pay tax on interest accrued on my FD of Rs 20 lakh. I have submitted form 15H in all banks. Is it necessary to pay tax in this case?

    A

    In case of interest on fixed deposits which is taxable under the head ?Income from other Sources? a taxpayer has two choices. Either you can...

  • Q

    Please suggest a good investment option of land in South India. I want to buy a land parcel of around 2 acres.

    A

    If you take a look at the South Indian real estate market, Bangalore has emerged as a clear winner. Due to the strong presence of IT/ITeS an...

  • Q

    I want to invest Rs 20000 per month. I have identified Reliance Small Cap Fund and DSPBR Micro cap fund for investment. I can hold to investments for two years. Is it a good idea to invest in these schemes? How much returns I will be getting?

    A

    If you are an aggressive investor, you can consider investing in either of the 2 funds.DSPBR Micro Cap My suggestion is that if you are inve...

  • Q

    I want to save my money for retirment Please suggest a good insurance policy

    A

    For retirement it is advisable to use multiple investment instruments and not just life insurance policies. If you have 15 years or so for r...

  • Q

    IS IT a Good time to invest in GOLD ?

    A

    Currently the outlook for gold is bearish/negative. However if you are planning for a long-term investment in gold it is ideal to invest the...

  • Q

    I have retired from my job in November. I have got Rs 48 lakh from my employers, by way of epf, gratuity and other benefits. Should i invest in senior citizen scheme of LIC? How about pension plans from LIC?

    A

    1. You can invest Post office Senior Citizen Scheme. 2. You also should invest lumpsome in MIP in post office and get monthly interest. 3. K...

  • Q

    I want to save Rs 1 crore for my retirement when i turn 60. Now I am 42 years old and have fixed deposits worth Rs 18 lakh.What should I do to reach Rs 1 cr mark?

    A

    start investing a minimum 5000 per month in mutual fund and increase 10% to 20% every year....

  • Q

    I want to save on my utility bills and fuel expenses.Please suggest a good credit card for me.

    A

    Yes, you will be able to save on Utility bills and fuel expenses through the cash back schemes offered by some of the credit card companies....

  • Q

    I am 36 years old and work in private company. so how can I manage my retirement planning...

    A

    Start with how much you would need monthly today, inflate the numbers and we can work on a corpus and then work on investing monthly towards...

  • Q

    Suggest couple of equity mutual funds for me. I am keen to invest Rs 25000 per month for next couple of years. I can remain invested for at least five years?

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    I am a senior citizen.I received interest of Rs .1,70,000/- on FD.I have duly filled 15G form.I have NO other source of income.Have I to pay Income tax on this interest or can it be excempted?

    A

    Sir, please note if you are less than 80 years but more than 60 years of age, your total income upto Rs 3,00,000 is exempt from tax, you are...

  • Q

    Please suggest a good money back policy for me. I am 27 years old and want to accumulate Rs 10lakh over 10 years.

    A

    If you are a fan of traditional money back policies, go in for the LIC New Money Back Policy of 20 or 25 years. I would suggest you go in fo...

  • Q

    I want to buy a life insurance for my brother Please suggest a good policy. He is 19 years old. he should get Rs 5 lakh when he turns 25 years.

    A

    Best to go in for a ULIP in case he is looking to grow the money also. Go in for a ULIP like HDFC Click 2 Invest which is very low on charge...

  • Q

    In 2013, I bought an Endowment policy from LIC. Premium for that is around 35K per year. Now i understand, this was a big mistake and i want to go for a term insurance policy. I have already paid two premiums in 2013 and 2014 and I want to make this policy paid-up. Can i pay one more premium this year and make that endowment policy paid-up ? Or is there any better alternative ? Please suggest.

    A

    Yes, you can convert to a paid-up policy after 3 years premiums have been paid. I would recommend that you surrender the plan and take back ...

  • Q

    Is zero depreciation cover a good option under auto insurance? I have plans to buy honda city in January

    A

    Zero depreciation is a good option to along with the standard car insurance plan. By paying a slightly increased premium you can ensure that...

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.