Source/Contribution by : NJ Publications
This article, as the name suggests is for those who start their retirement planning in the pre-retirement phase, in their 50's. Since forever, financial planners, bloggers, investment forums, distributors, including us, have been propagating the importance of early retirement planning, yet the ideal has not been implemented by a vast majority of Indians. Now when the deadline is just around the corner, the idea of planning for retirement makes a sudden entry into the 50's investor mind. The investor is late and Retirement Planning at this stage is a challenging task indeed, because firstly there is time crunch and secondly this is the time when you are converging towards the fulfillment of some of your life goals, you have grown up kids who might not be settled yet, kids' weddings expenses, etc., are yet to be funded and at the same time you have to plan and provide for your retirement. So, no doubt it is back-breaking but every cloud has a silver lining.
The following paragraphs will acquaint you with how an investor in his 50's should go about his retirement planning. You must note that planning the last 10 years will not land you in a similar position as you would have landed, if started one or two decades earlier, but yes with your efforts and commitment you can still be in a better plight in securing a comfortable retirement.
Assess your requirement, The first step in planning for your retirement is determining the amount you are going to need. This amount should be able help you maintain your present lifestyle post your retirement. It should be as specific as possible, and should be arrived at, after considering a number of factors such as, impact of Inflation, if your monthly expenses are Rs 40,000 presently and you are 55 years old, assuming an inflation rate of 6%, your monthly expenses will be around Rs 53,000 when you turn 60, they'll go up to Rs 96,000 when you turn 70. So your retirement fund should be able to provide for your ever increasing expenses. Secondly, you must also consider Longevity, the average life expectancy of people has increased over the years, you might live another 30 or even 40 years. So your retirement fund should be adequate to last a very long period of time.
No flukes, no trial and errors, The time is such that you don't have much time on your hand, to try your luck. The plan should be fool proof as there is no scope for mistakes. A small error can cost you big because you do not have much time to recover from a loss. Hence, as a first step you must approach a good financial advisor, who can rightly assess your needs, the time constraint and helps you devise a safe and goof-proof financial plan.
Save more, You are doing a 30 year job in 10 years, so you need to run really fast in order to cover up. The only way to achieve your goal is through saving extra. 50's is the peak earning period for most people since they must have reached senior management positions or have established businesses, with some major life goals already achieved like a house, kids educations, kids marriages also in some cases. So you must be having or moving towards a stage with increased disposable income, this income should be saved and invested for your retirement goal. Track what you are spending on, try to cut unnecessary expenses because either you splurge now or survive later.
Create a second source of Income, To save more you have two options, one you can create a second source of income from your existing assets or you have to settle for a lower standard of living. You can explore a number of extra income options from within your existing asset base. For example, you have a two storey house, you can let out a floor on rent or can start a PG, and direct the extra income towards your retirement. Or you have a colossal bungalow, where you and your spouse are living, your kids have moved out, your parents are no more, so you can sell it or rent it out and move into a smaller space, thus saving a lot of maintenance expense every month, and it'll be a huge contribution towards your retirement goal. A peaceful Retirement should be the priority, any asset which isn't aligned to a goal, use it to strengthen your retirement kitty.
Low Risk not No Risk, The general principle is you should invest in risky long term investments and move towards safer investment options as you age. Follow the ideology but not stringently. If you invest your entire saving in low risk, low return investments, then your pace towards your target is like a drop in the bucket, you might never be able to reach your destination. Your retirement plan should be a combination of a 50 year old and a 30 year old. You need some exposure to equity since it will generate higher returns. The idea behind including equity is, although you are retiring within this decade but that is just the beginning of your retirement period, you won't be spending your entire retirement corpus on Day 1 of your retirement. You can invest some amount in equity to sponsor your middle retirement years, like your 70's.
Be debt free as soon as possible: If you have any Home Loan EMI's or any other EMI's running, try to get rid off them as soon as you can. Unassociate yourself from the high interest bearing credit cards. Offload the burden from your shoulders so that you can have more money at your disposal to save for your retirement goal.
Start working on your health, healthy people save more more because of lesser trips to doctors and lesser expense on medicines. You are entering a stage when you'll be increasingly vulnerable to health problems, having your health by your side simply translates into having more money in your bank account. Also, Review your health cover, if you are a part of the family cover, take a separate and higher cover for yourself and your spouse. Any unexpected medical emergency can wreck your dream of living a comfortable life after retirement.
To conclude, Plan Now and Plan carefully if you want to avoid working till your last breath!