It is only natural that human beings don’t like to ponder over life after retirement when they are just starting their careers. However, submitting to this natural tendency can be a dangerous financial step that can render one critically dependent on others for simple sustenance, or, spend a life of financial stress, when one is most vulnerable health-wise.
Planning for life after retirement is, therefore, essential.
Think early, act early
The first rule, and one without any exception, is that one should start planning and investing early. The power of compounding works the best over the long-term.
Mutual funds
Moreover, for long-term investments, mutual funds are a very effective route. They are professionally managed and less risky compared to direct exposure to equities.
Small is beautiful
If someone starts investing at 25 years, a small SIP of Rs 2,500 a month in mutual funds can build a corpus of Rs 1.62 crore by the time he is 60.
By the way, we are assuming a moderate rate of return of 12%. We are also assuming that the person does not increase the amount of SIPs even if income rises over the years.
Go long-term with equities
Another rule is to prefer equities for long-term investment. Though any investment has to be in sync with the risk appetite of the investor, the risk many people associate with equities reduce in the long term.
An investment of 30 years or more would factor in at least three market cycles and reduce the risk to a large extent.
Avoid redemption
A third rule is one should try not to redeem units of mutual funds that are marked for retirement planning. Impulse purchases with these funds should be avoided at all costs.
NPS
The National Pension System or NPS is an effective tool of creating a pool of retirement funds — one which will give one a lump sum at 60 as well as a monthly pension from that age for the rest of the life.
EPF, VPF and PPF
The Employees Provident Fund, Voluntary Provident Fund and Public Provident Fund are exceelent, completely safe and tax-efficient wealth builders in the long-term.
Adequate health insurance
One of the frailties of advanced age centres around ill health and buying adequate health insurance is a time-tested route to minimise the financial damage that treatment can do to your pocket.
Even if you are currently covered by insurance provided by your employer, it will stop the day you retire. So there is no room for complacency on this count.
Use a calculator
Also, any planning starts with an estimate of expenditure. Try to use calculators to arrive at an estimate of the type of cash flow you might need after retirement. This might change with age and you can have a fresh look after every 5/10 years.
It will allow you to intelligently plan the investments that might generate such a cash flow.
Retirement planning: Why should it be a priority from early life?: From healthcare to food prices, inflation is making life difficult for the elderly. One of the primary tools to beat the corrosive effects of inflation is to plan for retirement from the early years. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
