Retirement planning is the important financial planning that everyone needs to exercise. After certain age or the end of the contract with your employer you will be retired. If you have not planned your requirement well before time, you may end up in trouble at your financial aspect. In this article we will explore different aspects of retirement planning along with we will understand how can someone freely retired without any worries.
What is retirement planning
Retirement planning is the fundamental step you take to secure your finances so that you can retire peacefully without any worries of financial burden. Retirement planning requires careful execution of your plan considering all of your future aspects like life expectancy, corpus you need, liabilities and plans, and a lot of other factors. Let’s understand what are those factors you need to consider while doing your retirement planning.
- Your day to day expenses
- Your emergency fund
- Your medical expenses
- Leading rate of inflation
- Your future liabilities
- Your requirement goals
1. Your day to day expenses
If you are planning for retirement the first thing you can do is to calculate your expenses at the time when you will be retired. For an example if you want to retire after 10 years then you must calculate what will be your expenses like travel cost, housing cost, medical expenses, some other liability etc. As you will get more free time hence you may spent more on your hobbies so make a list of budget you will be required to meet your expenses. You may not get the exact figure of your future expenses but you can find the approximate cost , which will be helpful for your retirement planning .
2. Emergency Fund
Be it at any stage of life, emergency fund is a lifesaver. When you are at a crucial juncture of your life like retirement, you must create an emergency fund to get ready for any contingencies. The ideal emergency fund could be 3 times of your yearly expenses.
3. Your Medical expenses
When you will get older you will be more prone to health issues hence you may end up spending more on medical bills. Definitely during retirement you must not want to relay on anyone to fulfill your financial needs. Hence it’s always wise to calculate and create a separate fund to meet your medical expenses during your retirement phase.
4. Leading rate of inflation
While doing your retirement planning, you need to always keep in mind the inflation. The cost of living of today’s world will never be the same by the time you will retire, hence while planning your retirement take the inflation into consideration.
5. Your future liabilities
If you retire that doesn’t mean you are free from your future liabilities like child education, daughters marriage, sending son or daughter to abroad for study. Hence you should have sufficient fund to cater all these requirements.
6. Your retirement goals
Make a list of your future requirements like your holiday plans, any major upcoming expenses or anything else you wish you may required during your retirement. Calculate the approximate capital you need for this and accordingly do your retirement planning.
Let’s do your retirement planning
After understanding all the above aspects now you need to follow the fallowing checklist for a healthy retirement planning
(a) Decide your retirement age
It’s very important and the first step of retirement planning is you have to be sure about your retirement age. There is no fixed age of retirement, it’s varies from individuals to individual. Considering the above factors you can decide a certain age when you wish to retire.. Now after you find a certain age to retire, check how many years is left for your retirement. For an example let’s say your current age is 30 and you want to retire by 60, then you have 30 years for your retirement.
(b) Always start early planning for a peaceful retirement
As early you start planning for your retirement as easier it will be to meet your target. That’s why the best time to plan your retirement is at your twenties. Because at your twenties you are young and your risk taking ability is higher. You can take the advantage of power of compounding to grow your money faster as well as you could achieve your requirement goals easily. However if you missed you can also plan at your thirties or forties. It’s always better to late then never.
(c) Calculate the corpus you need at the time of retirement
This is the most important step of your retirement planning. Considering all the above factors and your various different requirements now you can envisaged the corpus you might need to enjoy a stress-free retirement life.
(d) Design a suitable portfolio to meet your retirement goals.
After careful calculation and understanding all your future needs this is the time to build your portfolio. It is advisable to take the help of a financial planner who can guide you in designing your portfolio. Based on your risk taking ability you can allocate your fund into various investment plans and can plan your equities exposure accordingly. You need to chose the correct mutual funds and retirement scheme to get your investment objective easily.
(e) Track your portfolio review in intervals
Its not about only building a suitable portfolio it is also required to review the same in regular intervals and keep changing if something doesn’t work for you.
Some tips that can help you in achieving a stress free retirement
- Always try to be debt free because debt is a trap once you trapped it might be difficult for you get retire early.
- Set an auto transfer option for your investment so that you will not miss any , it will make you more discipline towards your investment.
- Don’t do trade or something in which you don’t have expertise. Take the help of a financial adviser for investment advice.
- Diversify your investment don’t put all your eggs in one bucket.
- Be sure about the legitimate of any financial schemes before doing any investment in any particular scheme.
Conclusion
Every retirement is a choice but you may forced to delay retirement if you don’t plan accordingly. Future is unpredictable for everyone but with fail proof planning you can achieve a peaceful retirement. Also read about some retirement plans here. Do let us know if any specific question or comment in your mind in the comment section. Happy retirement.