Planning Your Retirement – Do it the Right Way

Published by Sharekhan Education | April 9, 2021

Planning Your Retirement – Do it the Right Way

Sumeet a 40 year old banker was attending his senior colleague’s farewell party. Seeing his colleague cut the cake he remembered his first day in the bank and could not believe how fast time has flown. He suddenly realized that 18-20 years down the line he too would be retiring and needs to plan for it. Sumeet is serious about his retirement planning as he has seen his uncle facing financial difficulties post retirement probably because he did not plan for it. Sumeet does not want to repeat his uncle’s mistakes and wants to plan so that he can lead a comfortable retired life without being financially dependent on anyone.

It’s good that Sumeet has realized the importance of planning for his retirement and is taking serious steps to achieve it.However,r it is generally seen that not all individuals are serious about planning their retirement. Some don’t plan at all as they feel their children will take care of them, while others do plan but in an ad hoc manner. If planning for retirement is so important, it is even more important to plan it the right way.

Let us understand the right way to do so.

Decide your retirement age:

First thing you need to know is when you will or wish to retire. This will enable you to know the remaining working period and time left to develop the corpus accordingly.

Factor life expectancy:

Look at your family history and decide the life expectancy; this will help estimate your post retirement period. To ensure sufficiency of funds factor in a generous life expectancy.

Identify your post retirement living expenses:

Next you need to identify your post retirement expenses. Some expenses like daily travel, children’s educations etc… reduce, while others like medical expenses may increase. Identifying theses expenses will ensure you do not miss out the important ones. No guess work, it can land you in trouble if you do so.

Factor inflation:

Redoing your budget will help derive your post retirement first year expenses. But remember your retirement is probably a decade or two or more away, so the costs will not remain same. You need to now factor in inflation. Assume a realistic inflation rate which is neither too high or nor too low. This will help retain the purchasing power of your money and help you get to the required retirement corpus.

Take into account other goals:

Often people forget that life continues even though they have retired. Their needs & wants still exist. Generally goals like travel, house repairs etc. are not accounted for, as a result the retirement corpus is utilized to meet such goals. You therefore need to account for these and other goals and develop a separate corpus for the same.

Assess your current investments & bridge the gap:

Know how much you have at present and what will be available to you when you retire. Take an estimate of the investments available for your retirement needs, compare them with the corpus and bridge the gap as needed.

Review and rebalance your portfolio:

Most investor’s start investing but miss out on this important aspect i.e. portfolio review and rebalancing. To achieve financial success and meet your retirement goals it is thus crucial that you conduct periodic reviews and take timely actions.

To wrap it up we can say it is very important that you plan your retirement the right way; an unplanned retirement may lead to a compromised lifestyle or worst borrowing money from children or relatives to meet your basic requirements.

Planning your retirement is a must but planning it the right way will put you on the right track and enable you to make your golden years really golden.

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