Secure Retirement Planning: Essay
Considering the advancement in the field of medicine, the average life expectancy of an individual has increased from 60 to 69 years on average. For most of us today, the major concern is being able to maintain the same lifestyle after retirement as we are living today. But, is it really possible? Yes, it is! And, this is what we call financial freedom. The basis for this worry is the following questions: ‘How much money do I need?’, ‘Where should I invest to get the best returns?’, and ‘What is the best method without compromising on my present lifestyle?’. Retirement planning is just not about finances, it is also about the emotions involved after the big shift in lifestyle.
Study reveals that millennials are considered to spend the most on lifestyles and experiences. To this, Warren Buffet rightly states: “Do not save what is left after spending; instead spend what is left after saving”.
To begin with, you need to check your monthly expenses, your current income, and your liabilities after which you need to keep aside some contingency funds. In general, people who have retired tend to keep large amounts for contingency as a result of insecurity. There could be many unforeseen expenses that they could face after retirement, and hence they put aside an amount to look after their needs in the future. Financial planners advise that this money can be invested more appropriately for better productivity. With medical expenses increasing rapidly, the most important aspect given the present circumstances is to create a high healthcare budget. Some employers allow their employees to continue with the existing health insurance at the time of retirement, which needs to be re-confirmed at the time of retirement. When you are at that age, there are extensive medical check-ups, and buying a health plan is not always affordable. Retirement planning is a well-planned and lengthy process. The best time to start planning for your retirement is always ‘now’ rather than wasting time thinking and pushing it further. When you are young, you have a high-risk appetite that yields a high rate of return. So, this is the right time to start investing for life corpus post-retirement.
For most of us, the first thought of understanding steady income through investments would be through real estate or bank fixed deposits. While ensuring the safety and return of the capital, such investments assure income only over the product’s duration (except the annuity product). Although real estate investments do generate income and aid in the long term to beat inflation, there are some disadvantages that one must consider before making it. Considering the urgent need for cash, it is important to realize that it is not that easy to sell off property. Moreover, there could be regulatory or personal issues in the sector that may cause risks to liquidity and affect the investment. Ideally, if the need arises, one should invest in real estate not later than five to ten years before retirement. It is easy to get a loan when you are young, which has tax benefits during the years you’re earning the most. In case of a deficit in cash flow after retirement, reverse mortgaging your house and property (the current age requirement is over 60 years) can substitute an annuity plan while the owner continues to occupy the place. It is never too late to continue learning or developing new skills. Starting a small business is also a reasonably safe option. This will not only keep you occupied but also help build an occupation.
Considering the critical analysis, it is wise to take the help of the services of a qualified financial planner for a retired couple when there are technical and legal aspects involved. Certified financial planners are updated with the latest financial resources and thus will ensure optimal utilization of all resources to assure a lifelong income for the client without taking undue risks and stipulate the investments in the right way. They will also leave avenues for liquidity and help in estate planning. They also help in understanding your risk appetite at that point in time. Investing at this stage is like a tripod that requires a balance of liquidity, growth, as well as regular income.
There are some golden habits recommended by experts that every individual could consider implementing. The first one is to save a certain amount from your income. Experts at Happyness Factory earnestly advise at least 20% of the income to be invested in retirement corpus. It is one of the easiest steps to follow. If you are an employee in an organization, there is a forced saving of 12 % of your basic income and equal contribution by your employer flows into the provident fund. Even a contribution of a small amount can inflate the retirement corpus. The study states that along with the provident fund, individuals should also consider various other methods of investment like mutual funds, which are highly advisable as a corpus towards their retirement planning goal. Financial coaches suggest starting your SIP in mutual funds and automating the service by giving an ECS mandate to your bank. This would help keep your retirement plan on track. The second recommendation is that income and investment growth should grow together. “The more you give the more you receive” – as said by Robert Kiyosaki, in financial terms would mean a more rate of return. In addition, the corpus should remain untouched till you retire. To make sure that you don’t face a shortage of money, it is suggested to withdraw a limited amount in the initial years after retirement. The key to this is to withdraw only up to 5% from your corpus in the initial 5 years and then later gradually increase the withdrawal limit to 10 %, meaning that at the age of 80 it would be safe to withdraw 20%. And finally, at the onset of retirement, experts also advise allocating your assets to the beneficiaries by making a will to have a peaceful retirement. Write a will so that your assets are protected. Issue power of attorney to a confidante who can manage things on your behalf if you fall ill.
In conclusion, planning for retirement is extremely important. There are various ways of investing money for every age group and thus the experts accordingly suggest a customised plan of investments as per your goals. “A penny saved is a penny earned” is a quote often attributed to Benjamin Franklin, a quote that many successful people believe to be the mantra of their success. Earn, invest and spend wisely to have a steady and happy retirement.