Note to readers: No two people’s financial plans can ever be the same. Our income, expenses, goals, aspirations and financial obligations differ. But the first principles are more or less common, depending on your age bracket. Moneycontrol personal finance’s new series called ‘Life stage financial planning’ will tell you what these broad principles are, depending on whether you are in your 20s, 30s, or 60s.
For those in their 50s, there is both good news and bad news. The good news is that in about 10 years or maybe sooner, you will retire. No more catching the morning commute to office. The bad news is that these are your last few years with a full-time salary income. The question is: are you prepared?
Also read: Life stage financial planning: Saving for children’s goals and retirement in your 40s
The 50s are a critical stage in financial planning. In many ways, the decade ahead is your last chance to put your finances in order, so that you lead a comfortable retired life.
This is also when you have to start preparing for your life after retirement. Are you sure you want to retire fully, or do you wish to have a consulting job? How about pursuing those unfulfilled hobbies you’ve always wanted to, but never had the time for? Some people like to work for social causes, teach or simply relax, doing nothing. In as much as we all look forward to retirement, it is not easy for working professionals to stay idle.
Re-balance your portfolio
Let’s start with the basics first. Take stock of what you have done so far. “It is time to revisit cash flows and also remove the clutter from investments and insurance policies. For those of you who have not done any financial planning, it is now or never,” says Kalpesh Ashar of Full Circle Financial Planners and Advisors.
If planned well through the earlier years, the 50s should be smooth continuation of your earlier years. For instance, continue investing in Public Provident Fund. The ‘EEE’ tax exemption at the time of investment, on returns earned and the amount on maturity, makes it a safe retirement nest-egg.
Do not withdraw completely from equities. After all, this is your chance to ramp-up the retirement corpus. Make sure your systematic investment plans are continued.
But you could lower your equity exposure to reduce the risk of losing. For, it is hard to make good what you lose in these years. Financial planners advise a 60:40 ratio in equities and fixed income.
Through your 50s, you must reorganise your investments to make it generate a steady cash flow, as soon as you retire. “These are the years, when you must slowly transition from a growth-oriented portfolio to an income-oriented one,” says Hemant Rustagi, Chief Executive Officer and director, Wizeinvest Advisors. Atleast partly, if not fully.
Trim your debt
If you’ve taken loans before, now is a good time to square them off completely. You don’t want to keep paying your equated monthly instalment in your retirement, do you? Ideally, you ought to pay off your loans in your late 40s. In your 50s, since your salary hits peak levels, you’d want to invest as much as you can.
Also, make sure that you do not take any fresh loans at this stage. By now, in the Indian context, most people own a house and a vehicle. Those of you, who have enjoyed the perks of company-provided accommodation and vehicle, should bear in mind that soon, on retirement, these facilities would no longer be available. But you and your family would be used to the lifestyle that your company could have afforded you.
Review your insurance plans
If you haven’t yet brought a health insurance plan, buy now. Remember, your company-provided healthcare benefits will cease the day you retire. If you haven’t take life covers, then the 50s will prove expensive and you must carefully weigh the pros and cons of taking new policies. At this stage, don’t fall prey to unit-linked-insurance plans, as their returns are linked to equity and debt market performance.
Ironically, this is also the time when your children may want to pursue post-graduate studies and even go abroad for the same. Take an education loan, if it is necessary, and make your child aware of the same. Be certain not to touch your retirement corpus to fund your children’s education and even for marriage expenses. This is because you do not have adequate time to plan for your post-retirement life.
That said, you need not turn grim about your finances in your 50s. If you are a corporate employee and entitled to vacations, the 50s are a time when you must take these and enjoy life too. Family vacations at this stage make good memories.
Make your Will
By now, you should be clear about your Will. Sit with your spouse and go through your nominations. Make sure that all investment and estate planning documents are in place and shared with your spouse.