Nobody wants to retire poor. Everybody wants their twilight years to be as comfortable and cushy as it can be. But nothing comes free of cost. Most people consider retirement planning to be the most important financial goal in one’s life. A little effort and prudency on your part today can ensure a worry-free tomorrow. Here are a few mantras to live by to make sure that your retirement years do not suffer.
Calculate the savings you need for your retirement
Start off by calculating your current monthly expenses, then set your expectation the kind of lifestyle you wish to maintain. Next, factor in the expected inflation rate, number of years left for your retirement, expected years in retirement and the rate of return that your retirement corpus is expected to earn during your retired years. You could use this simple tool to calculate fund amount. This is the amount you need to save up for your retirement corpus. Once you have a target amount in mind, you need to figure out how much you need to contribute every month towards it. And most importantly, stick to it!
Begin investing early
This is a mistake most people make in their prime and wait to begin with investments and savings only once their income increases. It’s a rookie mistake that could cost you dearly. By investing early on, you have longer period to save for retirement which reduces the money you need to contribute every month. Ideally, you need to begin investing as soon as you start earning but, hey, it’s never too late! By delaying investments, you’re simply saying goodbye to all that interest you would have earned on your funds, no matter how insignificant you think they are. To help put things into perspective, here is a little representation of the impact of delaying investing.
Practice financial discipline
Like we always say, a little effort now will pay off in the future! Make a monthly budget for yourself and stick to it. Cut down on trivial expenses and make sure you save money every month. Never use the money you save for your retirement to tide you over tough days in the present.
Account for inflation
Inflation reduces the purchasing power of money and depletes the interest earned on investments. This makes it important to account for it. Generally speaking, inflation increases at the rate of 6-7% per year whereas, healthcare, increases at an average of 14-15%. Remember to increase your investment as your income increases.
Insure your health at a young age
Never underestimate the value of insurance. With healthcare inflation hitting all time highs, it’s important to insure your health in the retirement phase of your life. A single illness could wipe out your life’s earnings. It’s best to buy a health insurance early on in life when you are free from medical complications, because of which your insurance won’t cost as much.
Review retirement plan regularly
Making a retirement plan and leaving it unattended is pretty foolish. Circumstances change, economies change and products change. It’s important to regularly monitor and review your plan from time to time. Remove all bad investments and account for changes in the market to make sure your investment portfolio will help you achieve your desired retirement goal.
Don’t dip into your EPF
Your Employee Provident Fund is a hidden (in plain sight) source of wealth. Most people make the mistake of withdrawing their EPF when changing jobs. Don’t do that! Transferring your EPF from one company to the other is easy these days. Use this fund to grow your money till the time you retire. And curb all urges to withdraw this money for any present-day use, no matter how hard it gets!
Preserve existing wealth
Remember to not splurge on anything on an impulse. Use your existing wealth prudently. Unfortunately, that designer bag or the coolest phone in the market will not pay your bills in the twilight years of your life. Buying a car worth Rs. 9 lakh today, which is not absolutely necessary except to maintain your social status, will only leave you poorer by a surplus of Rs. 90 lakh after retirement.
Using these simple retirement planning mantras, you can lead a tension-free life. Depending on your children or family is never the ideal option. A little time and effort is all it takes to have everything in place for the later years in your life. Happy planning!