Do not put off today what you cannot afford to do tomorrow. In spite of the world wide pension crisis and a growing acceptance that we must plan and save for our retirement, the harsh reality is we are actually not saving enough. Research reports reveal that only 15 per cent of the individuals are saving sufficiently for their retired life. Here are a few tips on things to do before you retire so that your retired life is more comfortable and enjoyable.
1. Get rid of all your debts
If you are taking a housing loan, personal loan, car loan or any other loan make sure that you will be repaying them on or before your retirement. You need to choose the term of the loan in accordance with your retirement age. You can enjoy your retired life when you have 100 per cent financial freedom, not when you have to repay your loans.
2. Protect your emergency fund
Emergency expenses can happen any time. But the possibility goes up during the old age. So we need to enhance the emergency reserve year on year, based on the inflation and change in your expense levels. Emergency fund will give you a sense of security and also you need not touch your other investments during emergency where you need to pay pre-closure penalty. Also don't forget to refill the emergency fund once you met an expense out of emergency fund.
3. Establish a retirement budget
You need to visualize your retired life well in advance and need to create a budget for your retirement. That is you will not be going to office. So the expenses on transport and clothes may come down. Also you will have more time to spend. You may need to spend more on leisure travel and health care.
4. Examine your cash flow
Take a close look at your cash inflow as well as outflow. Is there going to be any income after retirement? Like rent, royalty.... would there be any unwanted outflow during retired life? Like paying life insurance, or SIP. At times during your beginning of the career, you could have taken a policy where you need to pay premium up to the age of 60. But now you may plan to retire at 55 itself. So you need to realign your existing policy and other investments in synchronisation with your retirement age.
5. Grow your retirement corpus
Find out how much corpus you need to have when you retire so that you will be having complete financial freedom. A professional financial planner will of great assistance to you in this regard.
6. Develop a withdrawal strategy
How are you planning to withdraw your cash outflow during retirement from the retirement corpus? Are you going to withdraw monthly, quarterly, half yearly or annually? Through systematic withdrawal plan in mutual funds or by way of dividend or interest. All these will have a great impact on the corpus you need to accumulate. So you need to decide in advance.
7. Minimize taxes
Your retirement corpus and retirement income need to be tax efficient. You need to pay taxes for the interest accrued irrespective of that you withdraw the interest or reinvest under a cumulative option. But you need to pay income tax only when you withdraw from the mutual funds. Careful selection of investment vehicle can reduce your tax during the retired life.
8. Get sufficient mediclaim coverage
The moment you retire, your employer will stop covering you under the group mediclaim. So you need to plan for your individual medical cover well in advance. At old age the medical expenses are inevitable. If you have not planned it properly the all your retirement plan will become a mess.
9. Consider inflation adjusted annuities
The monthly income you need when you retire is not going to be the same even after 5 years of your retirement. Inflation will increase your retirement expenses year after year. So year after year your retirement income needs to go up.
10. Oversee estate planning
How your fixed assets and financial assets need to be distributed to your legal heirs? Create a Will. You can avoid creating relationship problems to your next generation because of your left out wealth.
(This article is contributed by Ankur Kapur, CFA (USA), Director Finqa. Finqa is a fee based advisory company offering personalized financial plans to individuals).
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