5 Must do's before retirement

5 Must do's before retirement

Retirement today is not the same as it was for our parent’s generation. The generation today does not want to fade away into woodwork. They want to live a full life after retirement. They want to maintain an active lifestyle and not be dependent on their children. Hence retirement planning takes on a very important role.

Here are 5 must do's that pave a way for a great retirement:

1. Be ready to take on a second innings

Retirement arrives as a big change in life. You wake up one day and do not have anywhere to go. So the big question is, “Are you ready for it?” What do plan to do after retirement – after seeing all the movies you have saved up, after taking the world trip, after learning to make your breakfast – what do you plan to do?

For most of us, 60-65 is not old age and we are not quite ready to read the news paper and watch TV all day long.. The body and mind are active and you could use your experience for a related work area – a consultancy, teaching, start a business. Besides, keeping the mind supple, it will supplement your retirement income. So if you are nearing your retirement age, it is time to start planning for a post retirement innings.

2. Set up your own perks

There are many perks that go with a corporate job which will disappear once you retire. The most important of these being - coverage of medical expenses.  Many employers provide medical insurance or reimbursements for the employee and the family. This will disappear once you retire.  So you need to start planning for medical insurance a few years before you retire. As you get older the insurance rates get higher. A good option to keep rates lower would be to be included in a family insurance plan where your son or daughter is the principal insured.

3. Estimate your expenses

A few years before retiring you need to extrapolate your expenses. To start with segregate expenses into  taxes, living expenses, healthcare and  leisure. Calculate the current expenses in these categories and then use the appropriate rate of inflation for that category – everything does not increase at the same rate.  Also the amount you spend on each expense may change after retirement. For instance, expenses such as taxes, daily travel, eating out may go down. Other expenses such as health care, leisure travel etc might rise. Estimating your expenses lays the basis of retirement planning and you need to have an idea about your retirement goals several years before retirement to give yourself enough time for goal achievement.

4. Get a new salary

After retirement you will no longer be getting the monthly salary that has met your regular expenses. You can however set up the flow of income from investments, including pension, to come in as an equivalent to your estimated monthly expenses. Do remember to increase or decrease the “salary” according to the estimated change in expenses due to inflation.

5. Expect the unexpected

No matter how well planned we are, the unexpected has a way of surprising us. It could be your son asking for financial help to start his business or an illness that could set you back financially. Be ready with emergency funds that are kept away securely, infact it makes sense to plan for more than just one contingency. Set up 2-3 contingencies or emergency funds because you never know when life surprises you.

V BALAKRISHNA

IRDA registered Life Insurance Advisor,

www.licbalakrishna.com,

www.facebook.com/licbalakrishna,

Cell: 919885832381.

Retirement as important as child's studies

Opt for instruments with a long-term lock-in period to ensure that you don't dip into your retirement corpus to meet other goals    Most people dream about having an ideal retirement like having your own beach house or taking a painting class. But in reality, balancing between your immediate needs and saving for retirement is easier said than done. Take the case of the Kulkarni’s who had saved hard for their retirement while raising two children, Rahul and Sunita. Their joint income sufficed for modest comforts for their children like v acations, etc.    As the children grew up, Rahul wanted to do an MBA, Sunita to be a doctor. Kulkarni diverted most of his funds, which he had saved for a home for himself, towards his children's education, believing that they were his best investment and that they would care for him and his wife in their sunset years.

   Rahul managed to secure a good job and supported his parents early on. But, after he was married, he began to cut back gradually on the amount he proffered to his parents. With their growing years came mounting medical expenses. Kulkarni had no choice but to dig into his modest investments, which soon began to dwindle and quickly ran out.

Earmarking funds

   That's the case with many Indians today. Early into retirement, many retirees find that their retirement incomes are not enough to keep pace with inflation largely because of poor savings. Ideally, Kulkarni should have earmarked some funds solely for his children's education and some solely for retirement.

   He should have taken into account his retirement age and the approximate number of years he would want the corpus to last. Since women tend to outlive men, he would have had to provide for the extra years, the rate of inflation, the rate of return of the asset class he planned to invest in to build his corpus and the returns he expected his corpus would yield, post-retirement. Depending on the number of years to retirement and his risk appetite, asset classes should be opted for.

   The first thing to do is to clearly demarcate between various goals and create a fund for each. Retirement, education, foreign travel, etc, should all be a part of this goal-setting, exercise. Retirement should be somewhere on top of the list so it not compromised.

Account for inflation

   Inflation is another factor which should be taken into account. If, today, a family can run on a budget of say Rs 20,000, 10 years later even at a modest, 7 per cent per annum, rate of inflation, the same family will require Rs 39,000, 20 years later Rs 78,000 and 30 years later Rs 1,52,000. The figures appear alarming but if one checks back 10 or 20 years and compares the cost of living with today, these figures add up.

   Your daily life years ago could run on a lot less money. But that's not the case now, and certainly won't be the case when you retire. The rate of inflation is quite high, and there's no denying the cost of living is going higher. If a 35-year old wants a corpus of say Rs 1 crore at the age of 60 and wishes to accumulate this through investing in debt instruments, s/he would have to set aside Rs 10,250 every month for 25 years.

Balance your allocation

   Often, children's educational requirement takes priority over the longer-term retirement goal. Asset re-allocation becomes the urgent need of the hour. Equity instruments, though risky in the short term, have the potential of higher inflation-beating returns over a longer stretch. A judicious mixture of debt and equity can be utilised to achieve the required corpus. If you still have at least 10 years to retire, you can allocate a larger amount of your investable surplus towards equity. As you come closer to retirement, this should gradually be moved to debt. Even after retirement, ideally there should be some investment in equity based on your risk appetite.

   Children's education is very important. So is retirement. The number of working years is restricted but there is no cap on the years, post-retirement. The earlier a person starts, the lower the amount s/he would have to set aside. By investing in debt and equity judiciously, the limited amount available for investment could be well utilised. Allocate assets prudently and, when required, alter the allocation keeping in mind the goals of children's education and your retirement.

   It is never too late to plan for your retirement. If you don't want to compromise on your child's education, you will have to look at other means of funding your retirement or your child's education requirement, even during post retirement. If needed, allocate more towards the initial years for your retirement. Today, there are more pension and retirement products available that not only provide tax incentives but also go some way into funding your retirement.

Don't blame the underfunded retirement account on your children as there's no other way but to fund accounts with extra contributions in many retirement schemes that you cannot be easily broken and is locked-in till you retire.

V BALAKRISHNA

IRDA registered Life Insurance Advisor,

www.licbalakrishna.com,

www.facebook.com/licbalakrishna,

Cell: 919885832381.

                  

 How to retire rich and in style?

    Most people expect to retire from work with an expectation of a relaxed and peaceful life. For most, retirement would be to pursue a hobby with no worries to catch a train or a bus. In fact, it is the time to enjoy with grandchildren and get a break from your working life perhaps forever.

Everyone wants to have a happy retired life but sadly, only a few of the many make an attempt to ensure that their retirement phase would be something that they would look forward to than fear the arrival of it.

    The reason why people fail to achieve their desired life after retirement is because they either leave it on fate or incorrect planning.

    Thinking of packing your responsibilities from work should put a smile on your face because a new life awaits you. So get down to achieving it. All you need to do is set aside a small amount regularly for your retirement.

    In simple words, planning for retirement is a lot more important than you may realize. The price at which things are available will not be the same when you retire. Your standard of living has probably improved over the years as result of which you will now have to set aside more money to maintain the same level of lifestyle after retirement. Are you prepared for that? How will you bridge the gap of the cost of living with no means of income? The questions are complex but the answers are simple.

    LIC offers a wide range of pension plans which can be used for planning your retirement. By starting off early you can avail the dual advantage of saving more and investing for a longer duration. So make no further delay to plan out a happy retirement life and retire rich.

V BALAKRISHNA

IRDA registered Life Insurance Advisor,

www.licbalakrishna.com,

www.facebook.com/licbalakrishna,

Cell: 919885832381

WHEN IT COMES TO RETIREMENT PLANNING,

 EARLIER THE BETTER

“The best way to predict the future is to create it”... Peter Drucker

Majority of young people who have just started their career often tend to ignore retirement planning because they feel they have just started off in life. What they fail to understand is that starting our retirement planning early offers a lot of advantages.

Most common mistakes in retirement planning according to a survey on retirement planning:

·         It was too late by  the time I realized the importance of retirement planning

·         Did not think about saving regularly

·         Nobody told me

·         Did not think about rising cost of living

·         Did not think about cost of medical treatments

Advantages of an early planning for retirement

Ø  More number of years to save

Ø  Fewer liabilities initially at the start of career

Ø  Advantage of compound interest working in your favour

Ø  Option to reduce your amount of contribution in later years when there are more liabilities after marriage such as household expenses and children’s education.

Cost of delay in retirement

Let us understand this with the help of an example

	Mr.  A	Mr. B
Age	22yrs	22yrs
Monthly salary	Rs.30,000	Rs.30,000
Monthly expenses	Rs. 10,000-15,000	Rs. 10,000-15,000
Desired age for retirement	60yrs	60yrs
Monthly contribution for retirement planning	Rs. 10,000	Nil right now ( plans to start from age to 35 )
Maturity amount at age 60 ( Assuming 8% compound interest calculated yearly)	Rs. 2,75,70,087	Rs. 91,48,394

V BALAKRISHNA

IRDA registered Life Insurance Advisor,

www.licbalakrishna.com,

www.facebook.com/licbalakrishna,

Cell: 919885832381