Many Of Us In India & The World Underestimate The Importance Of Retirement Planning, As We Believe That Has Been Accounted For Through Our Mandatory Pension/provident Fund Contribution. While That Definitely Takes Care Portion Of Your Retirement Requirement, There Are More Factors That Need To Be Reviewed. Retirement Planning At Any Age Can Be Challenging. Still, There Are Certain Steps To Take If You Have Just Retired Or Has Lived A Few Years In Your Golden Years. This Article Will List Down A Few Important Checklists That You Cannot Afford To Overlook.
Budget Your Expenses –
Many Of Us Have Lived Paycheck To Paycheck, Hence Not Habituated To Budgeting. Also, We Have Denied Ourselves Many Pleasures In Life, Holding Off To Retirement, Since The Corpus Is Readily Available Many People End Up Overspending. Alternatively, You Would Have Been Budgeting, But Have A Few Expenses Covered Through Perks Which We Forget To Account For. Underestimating Expenses Is One Of The Biggest Retirement Mistakes People Make.
To Ensure No Slippage Or Overspending, Expenses Anticipated During The Post-retirement Phase Should Be Listed Down And Then Classified Based On Requirement With Respect To Periodicity And Fixed/discretionary. Usually, The Fixed Category Which Includes Indispensable Needs Like Food, Clothing, Housing, Taxes And Essential Utilities Consumes A Bigger Chunk Of One’s Income. Remember To Keep Some Buffer In Your Expenses. Having A Financial Buffer In Place For Unforeseen Events Will Create A Cushion In Your Budget.
Stress-test Your Retirement Corpus –
Stress-testing A Retirement Plan Involves Carefully Examining Each Component Of The Plan And Seeing How You Would Fare Under Extreme—or “stressful”—circumstances. Both The 2007-08 Housing Crisis And The Covid-19 Outbreak, If Anything, Have Taught Many Aspiring Retirees That Financial Turbulence Can Quickly Emerge. Stress Test Involves Evaluating Scenarios Like Higher Than Expected Inflation, Lower Than Expected Return, Higher Than Expected Life Span, Increase In Retirement Expenses, Fall In Retirement Corpus Etc. The Objective Of The Stress Test Should Be To “hope For The Best, Prepare For The Worst.”
Shift Your Attention From Return On Investment To Cost & Tax Saving –
The Primary Objective Of Your Portfolio Has Always Been Performance, But Neither You Nor Any Market Expert Can Outsmart The Stock Market. However, The Primary Focus In The Retirement Phase Should Be Capital Protection And Reduction Of Cost. Its Recommended To Review, What Are You Willing To Pay For Portfolio Management, And How Much Risk Should You Take? In Our Experience Building, A Retirement Portfolio Focussing On Fees And Risk Management Could Have A More Profound Impact On Long-term Performance. Remember That “a Penny Saved Is A Penny Earned”.
Transfer Your Risks –
An Effective Way To Deal With Risks We Are Unable Or Unwilling To Completely Avoid Is To Transfer Them To A Third Party. The Cost-effective And Suited Avenue Is Through Insurance. Whilst A Life Insurance Policy May Not Be An Appropriate Suggestion For An Individual Already Retired Or Near Retirement, We Believe A Carefully Evaluated Health Insurance Can Help Reduce The Financial Burden Significantly In Old Age. Also As Most Health Coverages Have An Entry Age Barrier, It’s Recommended To Get Covered At The Earliest.
If We Do Not Make A Conscious Decision To Avoid Or Transfer Risk, Then By Default We Retain It, Accepting Full Responsibility For The Potential Loss.
Follow Portfolio Asset Allocation Strictly –
It’s Easier To Stress About Market Movements In Retirement, A Recent Example Was The Market Crash In March 2021 Following The Global Outbreak Of Covid-19. Many Of Us End Up Taking The Impulse Decision Of Exiting Our Portfolio, Converting Notional Losses Into Permanent Ones. Now That Markets Have Recovered Some Ground, Investors Who Panicked And Withdrew Also Missed The Uptrend. Thus Even In The Retirement Phase, It’s Important To Ensure You Plan Your Asset Allocation And Stay Put With It Irrespective Of The Market Scenario. This Could Be Based On Your Risk Profile, Nearness Of Your Goals Or Your Assessment Of The Markets. Asset Allocation Ensures All Your Eggs Are Not In One Basket. Even If Stocks Crash, Gains In The Other Assets Help Control Losses In Your Portfolio.
Consider Living 10 Years Longer –
One Of The Biggest Fear One Has With Retirement Corpus Is, Not Planning For Long Enough i.e Fear Of Living Longer. With Constant Medical Advancement, The Average Life Expectancy Is Increasing. While This Is A Factor You Cannot Control, It Is Always Recommended To Plan For A Longer Post-retirement Tenure, For Additional 5/10 Years Of Retirement Expenses And Include Fixed-rate Annuities In Their Portfolio To Manage Potential Re-investment Risk.
To Conclude, We Would Say That Whilst All The Above Checklists Are Very Critical For Retirement Planning, Individuals Should Not Forget To Integrate Their Investments With Estate Planning For A Smooth Transition.
