The five-point checklist in the 40s to retire without regret

For anyone in their forties, the first task is to transition from a vague idea to a more solid mental framework of retirement. Between the twenties and forties, several shifts occur in one's aspirations, and therefore, an assessment of what retirement is and what it is targetted towards is necessary. This includes a clear plan on expected living standards, budgeting, estimation of possible medical expenses, travel itineraries, and other leisure pursuits.

It is essential to project these expenses for the future accurately, as it aids in estimating the retirement corpus required. Although financial advisors simplify these long-term projections with numerous assumptions like life expectancy and inflation, online calculators act as a great starting point. A clearly defined objective makes retirement planning far more strategic and a realistic, measurable financial goal.

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Increase Investment and Saving Rates Sharply

Having a clear objective allows for adjusting the savings and investment strategies. Financial planners advise individuals in this age bracket to allocate, as a starting point, up to 20-25% of their earnings towards retirement. This blunt approach becomes imperative to ensure that the gains from this aggressive approach compensate for the time constraint.

Understanding the necessity of a diversified portfolio is crucial. With 15-20 years ahead, a balanced mix of stocks, bonds, and real estate is ideal. Moreover, equities offer greater growth potential, so they should be prioritised. Thus, opting for multi-asset allocation investment options is wise because of their expert management and automatic adjustments based on market conditions.

Aggressively Eliminate Bad Debt

Debt that incurs a high interest, especially credit cards and personal loans, is the worst type of wealth erosion. The penalty of interest payments weakens the capital that would otherwise compound in the future. Thus, an aggressive approach to debt elimination should be the primary focus in the forties.

A payment plan that follows the ‘debt avalanche’ template is effective, aiming to settle the highest-interest rate debt first. With this, the least amount of interest will be paid over time. Additionally, high-interest burdens can be combined under a single, low-interest loan. The elimination of such debt provides a high amount of cash flow, which can then be invested in wealth-accumulating assets.

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Protect Assets With Proper Insurance

An effective retirement plan focuses equally on safeguarding your wealth as it does on increasing it. An unexpected health issue or some kind of personal setback can erase years of savings and disrupt carefully crafted strategies. Proper insurance serves as one of the most important shields against wealth erosion.

Life and health insurance policies should be reviewed to ensure alignment with current and future requirements. A family floater health insurance policy is necessary to mitigate spiralling healthcare expenses. Equally important is a term life insurance policy that acts as a protective shield for the dependents, and a critical illness policy too is worth considering. It offers a lump-sum payment upon diagnosis of major diseases, covering treatment costs as well as potential lost income.

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Financial Goals with Buffer Years 

Retiring at the age of 60 is often seen as the main goal. But thinking about retirement as early as 40 or 45 can be quite rewarding, and could encourage better financial habits. This more demanding goal creates a sense of urgency that inspires individuals. Such a major shift will also encourage people to save and invest more, manage their finances prudently, and be more cautious with their expenditures.

Even if one decides not to retire early, striving for this objective provides a meaningful financial cushion. This surplus allows for considerable flexibility and financial independence during the later stages of life. It also provides the ability to pursue a different, less demanding career, engage in passion projects, or go on a financially strain-free sabbatical. To genuinely guarantee that the later stages of life are associated with the term 'golden years' necessitates thorough and careful planning initiated in one’s forties.

The writer is CEO, Zuari Finserv Limited.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.