Retirement Planning

Start Early To Retire Early – Retirement Planning

Early retirement with retirement planning is like that delicious looking wild fruit which everyone wants to taste but few actually have the guts to do so. Gone are the days when families were supported by just one earning member. Even children are engaging in part-time gigs off late. Given such a win-win scenario, families are having greater disposable income which they are skillfully diverting to various savings scheme making the idea of mid-career retirement an attainable reality.

In most cases, an early retirement signifies an abundance of time in taking up that childhood hobby which got buried under paperwork and presentations. It also serves as a refreshing escape from monotonous work routine of engaging in something we seldom enjoy from the core of our heart. However, the silver lining lies in the fact that when people use the early-retirement planning tool to escape from something, then they should realise that the circumstances are never the same and they might soon end up being frustrated with the calmness of the daily mundane life devoid of the hustle and bustle of corporate culture.

Related Article : How Mr Sharma Plan his Retirement? COVID-19 Impact On Your Retirement Planning

Build up a Plan; To sustain in a long run

• Some brave hearts who have retired after crossing the 50 peripheries have again engaged in semi-retirement work mode sooner or later. The main reason behind this is that they often fall short of their desired retirement corpus which is imperative in imparting a positive stimulus to the early retirement drill and maintaining tranquillity therein.
• In our today’s blog, we shall share with you some tips and tricks of “how to get the ball rolling in your favor with the early retirement planning & procedure?” The stepping stone lies in setting financial goals that might take up the form of loan closure, owning the dream home, and children’s education. Before dwindling over a selection of post-retirement hobbies and activities, one must become financially independent. Planning well in advance can go miles in building a healthy corpus through time savings. One must remember that the purchasing power of money diminishes with time and thus it is extremely crucial to create a corpus worth fifteen times our annual income to sustain the present standard of living.

Why start Early?

• Ideally one must start with retirement planning at his young age so as to realize the adequate corpus at his actual retirement age. After squaring off liabilities, you will need to gauge if the assets in hand are enough to suffice your retirement goals which will act as the sole source to fund all expenses post-retirement. Since modern medicine is increasing our lifespan, an average human being can be expected to outlive his predecessors by at least 15 years.
• Saving habit at the beginning of our career is a good choice to ensure a debt-free life and a sound financial situation. Savings need to be such that can help us in our long lifespan which also can bear the brunt of towering medical expenses as our hair follicles start turning grey. Having a sound insurance cover can act as a buffer during times of crisis.

• The asset mix is also a supporting pillar of the holistic financial planning scheme. We can choose between equity and debt based on our risk-taking capability and expected return. However, with age our risk appetite also changes, hence getting our portfolio reworked periodically can help maximize our returns.
• Every time we get a bonus, we have an extreme adrenaline rush on stocking up our closet. Financial advisors have termed this habit as “lifestyle creep.” It creates a blockage in the path of natural savings. Thus, this should be avoided as much as possible. Instead, a habit of taking follow-up of the current investments would enhance their productivity and hence the bonus amount.

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Senior Citizen: Where to Invest Retirement Money?

Retirement is a phase when you don’t have a regular source of income yet your lifestyle expenses continue. That is why financially prudent individuals plan ahead to create a retirement corpus so that their retirement funding is taken care of. While you know where to invest to create a retirement fund, do you know where to invest your retirement money?

When you retire you get lump sum money at your disposal which you accumulated as your retirement fund. What should you do with the fund? Should it lie idle in your saving bank account?

No, it shouldn’t. Retirement doesn’t mean that your investments should retire too. However, post-retirement your investments should change keeping in mind your changed requirements. You should create a source of regular income for meeting your lifestyle expenses and also invest in other avenues that give you stable returns.

Related Article : How Mr Sharma Plan his Retirement? COVID-19 Impact On Your Retirement Planning

Here are some options for investing your retirement money

1. Senior citizen saving scheme (SCSS)

SCSS is a scheme meant for retired senior citizens. You can buy the scheme from a bank or post office. The interest rate is currently 7.40% per annum and the interest is paid quarterly. You can invest up to Rs.15 lakhs in the scheme and the term is 5 years which can be increased by further 3 years. SCSS gives you quarterly income in the form of interest payments. Thus, you get a steady source of income through this scheme.

2. Immediate annuity insurance plans

Life insurance plans offer immediate annuity plans which promise lifelong annuity from the date you buy the plan. Annuities are paid monthly, quarterly, half-yearly, or annually depending on your choice. You can choose to receive annuities in different ways allowed under the plan. In fact, you can avail joint-life annuity which pays annuity till your and your spouse’s lifetime. Thus, annuity plans also provide a source of regular income.

3. Mutual fund schemes

Mutual funds offer an attractive investment avenue for every investor. Being a senior citizen you should choose to invest in debt funds or balanced funds. Equity mutual funds, if chosen, should be invested in a limited manner. You shouldn’t take very high risks with the investment of your retirement fund and protect it from market volatility. Systematic Withdrawal Plans of mutual funds are a good choice if you want regular incomes. You can also invest in other schemes for long-term investment and create wealth.

4. Fixed deposits

Fixed deposits always hold attraction given their promise of guaranteed returns. Fixed deposits have now become flexible in nature which does not have fixed lock-in tenure. You can redeem your deposits any time you want. So, if you want to invest a portion of money for a fixed tenure and want guaranteed returns, fixed deposits are also ideal.

5. Tax-free bonds

Another option to explore is tax-free bonds. These bonds give guaranteed returns with a lock-in period of 10 or 15 years. The interest earned is tax-free giving you tax benefits.

6. Post office monthly income schemes (POMIS)

POMIS is another attractive investment avenue for your retirement funds. As the name suggests, you get monthly incomes under the scheme during the tenure of investment. These incomes are the promised interest which is paid on a monthly basis. The current interest rate of the scheme is 6.60% per annum and you can invest a maximum of Rs.4.5 lakhs individually or Rs.9 lakhs jointly.

These are some of the best investment schemes for your retirement money. You can choose the scheme based on your requirement of regular returns or wealth creation. So, take your pick and let your retirement fund earn for you even after you retire.

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How Mr Sharma Plan his Retirement? COVID-19 Impact On Your Retirement Planning

Mr Sharma seemed quite tensed while having a morning walk, which was either his work stress or something else maybe. I tried confronting on the same; ‘ Hey Buddy, you look worried. Is there something you wish to share with me?”

“Oh yes! I am not quite sure how to share my concern. But I can talk  to you as a friend and maybe you can advise me as my Financial Planner.” Mr Sharma and we both share a professional relationship.

Then he went on about his concern about retirement planning and also was unsure about COVID impact on retirement planning. He is a private sector employee earning decent earnings but the uncertainty and panic clouded his mind about his retirement planning with COVID on rising. 

“I have worked for almost 15 years for XYZ Ltd. and would be willing to continue for  5 more years. But with this COVID 19 impact  on Global economy, I am not sure whether I would be able to survive the market.”

It is indeed true that these are uncertain times and we should strive to look for any fallback alternative. I assured him to help on Retirement Planning considering COVID 19 Impact. 

Let’s see why Mr Sharma is worried about his Retirement Planning even when he is still investing and try to come up with a suitable retirement planning.

Retirement Planning 

Why is that you should do the Retirement Planning? There are two basic reasons 

• To maintain the current lifestyle 

We may have reached our goals of owning a car or enjoying foreign vacations. But when we have retired and don’t have any stable income, how are we supposed to maintain this lifestyle?  Retirement Planning helps us to invest well in advance considering the amount we wish to receive in future. 

Related Article – Financial Planning – Tips For Every Generation

• Inflation factoring and other relevant disruptions

Inflation is the biggest wealth killer if we don’t plan our retirement considering the Inflation impact on the same. Also, the markets are always subject to risk. Now we do see a visible impact on the economy due to pandemic, which has resulted in job loss, lesser production and lesser disposable income. 

How COVID 19 has impacted the Retirement Planning?

• Job loss or pay cuts 

Covid 19 has affected the Job markets since lockdown resulted in shutting off of various businesses like hotel businesses, schools, colleges, Gyms etc.

A very huge section has suffered business losses or has suffered pay cuts or have lost their jobs, leading to lesser cash flows towards retirement planning.

• Increased medical and sanitization expenditure 

Most of the businesses are trying to keep up with Unlock, however, the increased burden of the sanitization and medical expenditure (medical insurance) has again impacted the disposable income.

• Impact of Moratorium and loan restructuring 

The government had declared Moratorium for all types of loans, however, with Unlock 1 and 2, banks are also expecting a payback. It is unsure how they would restructure the loan considering the EMI deferred in Lockdown period.

• Stock markets uncertainty

Stock markets kept tumbling due to stress caused by COVID 19 induced Lockdown. However, again the markets started to surge with Unlock 1 and 2, leaving the retail investors in awe. This has created a what-if question in the investor’s mind.

How Mr Sharma Plan his retirement in the wake of COVID 19 impact in the Retirement Planning?

• Mr Sharma should try to defer retirement or try to earn some extra income in case of pay cuts

Mr Sharma was thinking of early retirement with a small business set up within the coming 5 years in a Pre-COVID setup. However, COVID 19 impact is yet to subside and it would be better if he could postpone his retirement by at least 5 more years to compensate deficit income. 

He could as well try to look at some simultaneous earnings options if he could manage the same. This will help him balance his Corpus investment in retirement Planning even in COVID 19 scenario.

• Mr Sharma should reassess his Risk Appetite and Investment threshold

With the increased medical premium for COVID cover and sanitization expenditure, Mr Sharma needs to revisit his existing investment plan towards Retirement Planning. The interest rate of bank deposits have soared low and markets are beaming due to news of COVID vaccine. 

However, it would be pertinent to assess whether he could take the risk to invest in markets or mutual funds at this juncture.

Related Article – 6 Retirement Planning Mistakes To Avoid

• In no case, the contingency funds are to be touched 

Every family maintains a contingency fund which might be in the form of Fixed Deposits, Gold or some government securities. Mr Sharma should not divert these emergency funds towards allocating his retirement planning. 

• Mr Sharma will need to reduce unnecessary expenditure

Dining outside or multiple OTT platform subscriptions were okay in Pre-COVID scenario. However, Mr Sharma should cut down on all unnecessary expenditure which would burden his investment portion. 

When there is cut back on the expenditure, Mr Sharma could easily tap the usually drained out funds which could be easily allocated to Retirement Planning.

• Mr Sharma shall think of loan restructuring 

RBI had come up with the facility of deferring the EMI payments for a certain period of time considering the COVID impact. Now, the interest rates have soared much on all loans. This calls for loan restructuring and the deficit in retirement planning would be filled in with the money so saved in interest.

• Never put all eggs in one basket

Once Mr Sharma is done with Risk profile assessment, he can think of diversified investment towards retirement planning. It is a seen and verified fact that bank interest rates are diving lower and markets are shining. 

If emergency funds are already invested in safe instruments, then Mr Sharma should think of setting aside funds and investing in Mutual Funds and Stocks. The COVID cover is also necessary until vaccination materializes. This will cover the financial health as well as will not hamper the Retirement planning aspect too.

Financial Planning For Retirement – The Must To-Do Thing When You're Young

Let us begin with two different situations. First of all, all of us would like to enjoy free time without any professional duties aching us. It is needless to say that having such unperturbed leisurely time free of professional worries requires a solid financial standing.

Now consider the second situation. After reaching 60 some people still wish to go on working for few more years just because their savings is not enough to meet the cost of living. Moreover, we all know the financial insecurity associated with old age.

So, on the one hand we have the dream of living an unconcerned, happy life free of professional and financial worries and on the other hand, we have all the worries, insecurities and instability of old age post-retirement days.

Now, let us ask you straight, which of these two situations do you want to fit in? Or, better to ask you more precisely, which situation fits your financial reality best? Did you assess your financial condition and the possible outcome of this in detail? If not, this is high time to have a complete assessment of your present situation and the days ahead.

While the first situation irrevocably calls for an early financial planning and early retirement, the second refers to a condition where a person finds himself in a difficult situation after retirement without really having anything to back him up.

So, financial planning is necessary to avoid finding yourself in a nightmare of insecurities in your old age. On the other hand financial planning is necessary not only to ensure solvent and sound financial condition in the post-retirement years of life but also to fulfill the dream of early retirement.

How financial planning ensure a life free of worries, insecurity and instability? First of all, you need to start planning early in your life when you are still young. Let us offer here a few tips for financial planning at young age to make your post-retirement days brighter.

1. Begin Retirement As Early As Your 1st Job

Earlier you begin saving and investing, bigger the sum you can ensure at the time of your retirement. Moreover, starting early with various investment options is double beneficial since you can easily gain expertise by having better exposure. If you are an employee, make bigger contributions to your provident fund and if you are self employed make a voluntary contribution on a regular basis on any systematic investment option including PPF, SIP, etc.

2. Consider Value In Every Financial Decision

Young people are less considerate about the value of money and naturally they end up spending a lot on clothes, gadgets, lifestyle and vacations. Well, enjoying life is fine as long as you can ensure the same for your later years. When you think of your later years in the post-retirement period, the grim future of uncertainty will push you to consider the value of money in a new light. Instead of spending lavishly, hold on to some principles and make better judgment and better bargain.

Read here: 9 Steps To Ensure Better Returns And Improve Your Financial Status

3. Maintain A Distance From Credit Card

Young people are highest spenders on credit cards. To make their lifestyle dream come true and to grab the things they always wanted they do not mind spending on their credit cards and taking the burden of credits on their shoulders. This ultimately results in a debt ridden scenario far from financial solvency. This actually takes one towards the opposite direction of financial freedom. If you want to start planning your financial condition with a positive note, just use credit cards only sparingly and only in unavoidable necessities.

4. A Liquid Reserve To Meet Contingency

This is probably the most important step for financial planning. You cannot meet the contingent situations if you do not have a prior planning. In case of abject needs from where you can quickly fetch funds? Do you have a reserve of liquid asset to meet such contingency? If not, it is time to prepare for one. It is said by experts that one must have a liquid corpus of at least 6 times of the average monthly income.

5. Insure Your Family

What our happiness amounts to if we cannot just ensure the same for our family? This is particularly true in case of any sudden mishappening or accidental situations. In case the earning member of the family dies or becomes disabled all of a sudden just due to any accident or illness, the dependent family should have the decent financial arrangement to look after their expenses and lifestyle. Unquestionably, there is not a better tool than insurance for this arrangement. This is why insurance is one of the most crucial parts of financial planning.

6. Take Calculated Risk

When you are young, you have long years to achieve growth overcoming the ups and downs in volatile market based investments like equity, mutual funds, etc. This offers you a great opportunity to make your money grow and achieve large sum over a longer period. So, when you diversify your investment you should have a considerable portion invested in market based instruments like equity and mutual funds.

7. Choose Financial Planning Instruments That Suit You

Finally, every person has his own financial objectives, types of financial constraints and ambitions. Naturally, choosing your financial planning instruments will also vary accordingly. You need to choose a financial plan that suits you best. It also depends on various factors like your age, professional exposure, job security, volatility of income, financial responsibilities and burden, available provisions for making savings for retirement with contributions from employers, etc.

Are you still at your late twenties and earning a decent salary with no such financial responsibility on your shoulder? Well, you can literally go all out with a robust growth driven plan. Are you in your late thirties or early forties with a good income and a family to look after? Well, you need to take cautious steps in regard to risks and can diversify your investment in several instruments to achieve the right balance of growth and security.

6 Retirement Planning Mistakes To Avoid

Disciplined financial planning serves as the prerequisite of leading a financially secured retirement life. However, this hardly gets followed in most of the cases. Although retirement planning sounds a bit scary and confusing to most people, this anxiety can be entirely removed by avoiding the most common retirement planning mistakes committed by people. Today we are going to take a look at the biggest retirement planning blunders so that you can be well-braced while deciding on your retirement plan.

• Starting Late

Instances are not rare when people start planning for their retirement after reaching their 40s. However, at such a stage they also have other things to take care of like children, elderly parents, paying for a home loan and even maintaining a certain standard of living. Staring early in the track of retirement planning can provide you with more time to ensure the proper growth of your investments which in turn leads to greater corpus accumulation.

A 35-year-old planning to accumulate a retirement corpus of 1.5 crore INR needs to opt for a monthly SIP of 8000 INR at 12% annual returns. Whereas a 25-year-old would just need to invest 2300 INR in monthly SIP for attaining the same corpus. Thus, you can very well understand that starting early is not just a choice, it’s an absolute must.

• Inadequate Health Coverage

Growing age is synonymous with increasing medical expenses making it vital to opt for an adequate health cover which can cater to the sudden requirements you might face during the golden years of your life. Failure in procuring an optimum health cover meant for your post retirement phase can cause you to lose a major chunk of the retirement corpus in treating unforeseen medical expenses.

In many cases, employers provide group health policies but they remain active only till the time of employment. This is why it becomes imperative to opt for an adequate health insurance plan early and keep on renewing the same with timely payment of premium. Insurance companies usually extend their coverage up to 65-70 years in many cases and advise thorough medical check-ups once you cross over the age barrier of 55. It becomes imperative to opt for health coverage prior to the same and keep on increasing it on a yearly basis for catering to all medical costs.

• Overlooking Inflation Metrics

We often make the mistake of calculating our retirement corpus based on our current income and price level. Our income keeps on increasing till the date of retirement to keep in sync with the growing cost of living. However, the amount retirement corpus remains fixed based on certain decisions we take during the early stages of our life.

Inflation has a tendency of decreasing the purchasing power of money over time and hence it is necessary to consider the same while getting the retirement planning done. You can consider the expected and current inflation rate at the time of calculating your retirement corpus. Various online retirement calculators are available to assist you with the same on a monthly basis so that your accumulated corpus can easily sustain the wrath of inflation.

• Buying More Policies Than Actual Requirement

Several people end up buying around 14 to 15 insurance policies to safeguard them during retirement. But in reality, being a policy collector will not make things easier in your golden age. As an alternative, you need to learn in detail about the concept of life insurance and get a term life cover. This cover can be enough for taking care of the financial expenses of your dependants unless someone else in the family starts earning.

• Sporadic Reviewing Of Retirement Plan

A retirement plan might not be of much help if it is not reviewed and implemented properly. It is definitely not a one time activity given the long time span of the goal. In reality, changing times require changes in the plan and hence sticking to one single plan can result in faltered output. All major life events be it marriage, childbirth, taking a home loan or sending children abroad for education significantly affects your savings pattern making it mandatory to alter the investment strategy.

• Inappropriate Asset Distribution

Asset allocation has an extremely important role in deciding on the type of investment which can serve you in post-retirement stage. Asset distribution usually concerns the allocation of funds amongst different investment tools like bonds, stocks, real estate etc. Your individual needs and financial standing can significantly affect your asset allocation. Various factors like changing lifestyle, decreasing income and risk taking ability also alter significantly with increasing age.

Younger people having high risk bearing capability are usually advised to opt for equity investments as they can provide higher returns and are perfect for the long-term horizon. Your asset allocation needs to be periodically revisited for ensuring that it is appropriately aligned with your end goals. Acting otherwise might leave you with insufficient corpus which might not be able to beat the rising inflation metrics.

Read More :- Impact of COVID-19 on your Retirement Planning

Conclusion

The spread of financial literacy amongst Indian people have made them conscious about the requirement of retirement planning from an early age. Maybe this is why it is not rare to come across job fresher’s belonging to the 20 something age category seeking the assistance of financial experts in planning the golden days of their life.

With more and more youngsters opting to work under the private sector, a proper retirement planning is slowly turning into the need of the hour. Job insecurity and lack of government pension can be sighted as the biggest causes of the same. But if you are aware of the mistakes lined out above, then you can definitely attain your retirement goals in due course and with minimal obstacles.Download Minty app App store & Play store and chat with experts and know the best retirement planning strategies.