Retirement Planning at Various Stages of Life

Retirement period is supposed to be the golden years of your life. No wish to work, leisure time with grand-children, comfortable social life is what each one of us aspire during this period.We work our lifetime to make sure these 20-25 years are memorable.

 To achieve this objective, it’s necessary that you plan well. With increase in risk of longevity and inflation playing a devil’s role, procrastination can make the going really painful.  Starting early helps not only in reducing the savings required but also increases the probability of surpassing the required wealth.

 Planning for you retirement goes through various stages where you need to review your strategies. Sometimes increase in your responsibilities & more liabilities forces you to increase your contribution to other goals. This may hit your retirement blues as it is the easiest to neglect considering it may be the last to achieve.

 Here is how you should plan for your retirement years at various stages of your life-

 1. Young– When you are in 20s, time is on your side.You can be very aggressive as you do not have liabilities. You are also in the best age to benefit from power of compounding. Strategize your retirement contribution as you start earning. Explore benefit’s provided by your employer like Employee Provident Fund & Gratuity. If it’s not part of your compensation, discuss with your employer and include it. Ensure at least 10% of your income is contributed to these long term assets. Start investing in assets where compounding benefits are more.SIP initiated at this age can do wonders when you retire.However, aspirations are also at peak during this phase. Resist any temptation to spend lavishly and avoid withdrawing your retirement contributions.

 2.   Middle Age– 30s and married.You have a family to take care. At this age you are loaded with liabilities & your expenses starts increasing. This should not deter you from continuing your investments.To protect your family financially, buy adequate insurance and maintain emergency fund.You might reach a stage where you fall short of funds for requirement like education for your children. Avoid dipping in your retirement corpus. Maintain an aggressive approach and keep contributing to retirement assets.

 3.  Nearing Retirement– You have just celebrated 51st birthday. You would be finishing with your liabilities very soon and your income earning is at the peak of your career. Increase contribution to your retirement assets like EPF to at least 20%. Since your ability to save is high, you should increase your contribution to all investments. As you approach your retirement start switching your investments to low risk assets. This will preserve what you have been accumulating for so long. This is also a time when you plan your retirement years and sharing your plans with your spouse may be a good idea.

 4.   Finally Retired– You have retired now. You might have been knowing your requirement but evaluate now how much you require to withdraw every year. Most of the retirees take a conservative approach by redeeming all from equity and taking exposure in fixed income. Do not make this mistake. Remain invested in equities to some extent as your corpus will need growth to sustain for lifetime.Remember, you do not have loans at this juncture to meet your expenses. Maintain adequate corpus in liquid instruments in order to meet 2-3 year expenses. Some of your expenses post retirement will get reduced while for some you will have to adjust your lifestyle. Estate Planning will be your main objective as you will like to transfer your wealth to your children’s. Hire a financial planner to ensure smooth transition of your wealth.

 Retirement planning is a very important element of your financial well- being. How your post retired life pans out depends heavily on when you starts planning for it. At young age you have the time and risk taking ability to benefit from power of compounding. The things get difficult as you grow higher in age. If delayed it becomes a one day match where the required run-rate balloons to such an alarming proportion that sometimes it’s difficult to reach the target. Being in a hurry, you make mistakes jeopardizing your future.

 Hence, start planning your retirement as you start enjoying life with your income and do remember these key points:

  1.  Start early to reap the benefits in later years
  2. Contribute in the government schemes meant for retirement
  3. Keep enhancing your retirement contribution with increase in your savings
  4. When liabilities arises, do not withdraw from your retirement savings
  5. As you approach retirement switch from risky asset class to preserve your accumulation
  6. Post retirement- invest partly in growth assets to negate inflation
  7. Maintain adequate insurance to meet emergencies
  8. Involve your spouse to plan your retirement dream
  9. For effective transition of your wealth create a will & maintain proper records of your assets
  10. Hire a financial planner if required