In today’s world with increasing longevity, it is very important to plan for twilight years. You may have long working life, but you also need to ensure that you have enough savings to last through your post-retirement years. However, this is not a difficult task to accomplish. With careful planning, you can make sure that you fully enjoy your retirement.
1. Set an Emergency Fund:
While it is important to save money for retirement, it is equally important to create an emergency fund. This fund will ensure that you do not drain your retirement fund if you face any emergency situation such as unexpected illness, loss of job or any natural calamity. Emergency fund is also required during the retirement as the emergencies such as medical procedure are more likely to happen during old age. Emergency fund will help you in achieving the sense of security. You can also avoid dipping into your other investments which may attract pre-closure penalties, furthering your financial woes. You should also make sure that you refill your emergency fund after taking the money out for meeting the emergency
2. Start Early:
As with any other kind of financial planning, it is important to start early even for retirement fund and take the advantage of interest compounding. This phenomenon ensures that you receive bigger payout even if you do not invest as much in the later time period. In the earlier part of your career, you should endeavour to invest in the retirement fund as much as you can. These early inputs will have a lot of time to grow till your retirements, providing you with a nice and secure nest egg at the time of your retirement. If you start late, you may need to save much bigger amount to reach the same amount of retirement fund.
3. Reduce Your Debts:
You should consistently try to curtail your debts as these debts incur higher interest rates and also hinders your capacity to save. You should make sure that all the debts that you are carrying will be repaid before your retirement approaches. If these loans remain pending during your retirement life, then your quality of life is likely to be a lot lower as a large portion of your savings may be diverted towards the repayment of loans. You should strive to repay all your loans before your decided date of retirement.
4. Set up a Budget:
Setting up a retirement budget will let you have realistic view of your expenditure during the retirement. Once you know your probable expenditure, you will be in a better position to plan for the retirement fund. While, in retired life, your expenditures like commuting expenses will come down, but other expenses such as medical bills may increase. You need to account for all these factors in order to reach a realistic plan.
5. Plan Your Taxes:
In retirement, your tax liability may come down, but it does not get reduced to zero. You may be liable to pay tax on your investments. Additionally, you may have to pay taxes on various assets such as your house. You should carefully provide for all these expenses. You may also look for professional advice for controlling your tax expenditure. When you make investment decisions, always compare post-tax returns to have realistic view of the investment opportunities. Also plan your withdrawals to minimize your tax liability.
6. Pay Attention to Inflation:
This is an important point you need to keep in mind while preparing budget for your retired life. Keep in mind that the expenses will rise owing to inflation and would not remain at the same level throughout your retired life.
7. Provide for Cash Flow:
It is important to keep track of not only outflows but also of inflows. You may also take into account some small part-time jobs you may take. However, you should make sure that you do not overestimate your income potential. It pays to have a conservative view.
8. Get Insured:
It is very important to get proper insurance coverage to ensure that your emergency fund and retirement fund does not get depleted paying for unplanned expenses. Medical expenses are spiralling; therefore you should make sure that you have adequate medical insurance.
9. Diversify Your Investments:
You should have well diversified investment portfolio. You may allocate funds between fixed income securities and inflation adjusted annuities. This will ensure that your nest egg is not only secure but is also able to withstand the impact of inflation.
10. Plan Your Estate:
With increasing estate tax, it is prudent to draft a proper will, allocating assets between your heirs. This will not only help you in properly planning for your retired life but will also help your heir in maintaining cordial relationships as well as avoiding any hardship.
