Having adequate funds to comfortably sustain our lives during our post-retirement years is a financial goal everyone wishes to meet. So it’s important to draw your retirement plan cautiously, as a significant part of your life will depend on it. To help you make informed financial decisions, we have discussed what we call the four pillars of retirement planning.
First pillar: Focus on regular income after retirement
Some people feel that a lump sum corpus should be enough to meet the entire range of regular expenses after retirement, but here they can go wrong. No one can accurately figure out the number of years one would live after retirement. So, if you draw money from your accumulated corpus, it would gradually come to an end, something that can cause immense financial distress. Hence, it’s always better if you focus on a regular income plan after your retirement to meet your daily expenses. You can invest your retirement corpus in instruments like Senior Citizen Savings Scheme, annuity plans, mutual fund schemes with systematic withdrawal plan (SWP) option, etc.
Second pillar: Set the post-retirement goals correctly
Setting correct financial goals for your post-retirement years is as important as your pre-retirement years. You may fail to accomplish certain pre-retirement goals: like, you may not have repaid in full the education loan you took for your children, you still have five years of home loan EMIs pending, etc. when you reach retirement age. As a result, you must try your best to assess the expenses that you may incur after the retirement and accordingly plan your investments to build your retirement fund. Also, maintaining an adequate emergency fund to cover for any financial uncertainty is highly recommended.
If there is a mismatch between the post-retirement goal and financial requirement after you actually retire, you may find it difficult to arrange the financial deficit at that time. So, it's important to set your post-retirement financial goals correctly.
Third pillar: Beat inflation
Inflation works continuously to diminish the value of your retirement corpus unless you keep it invested. You should focus on earning a high real rate of return on your retirement corpus to beat the inflation consistently. For example, suppose the inflation at the time of your retirement is 5 percent and you have a corpus of Rs 1 crore. In this scenario, you should look for investing your Rs 1 crore fund in instruments which can give you a post-tax return of more than 5 percent per annum. The higher real rate of return ensures greater safety from inflation.
Fourth pillar: Stay adequately insured
Many believe that their insurance needs end after reaching the retirement age. If you too think so, you’re possibly making a costly mistake. Insurance is one of the most important financial tools that can protect you from different types of uncertainties. Life insurance can help your spouse to live a financially independent life even after your death. A health insurance plan, on the other hand, can safeguard your financial interests against medical emergencies that can otherwise destabilise your finances, especially when you don’t have income coming from your job. Hence, do not compromise on insurance, even during your post-retirement years.
Apart from the pointers mentioned above, you should also review your retirement goals from time to time and make necessary changes in your investments. Financial farsightedness and smart strategies will go a long way to ensure you get the proverbial pot of gold at the end of the rainbow. Wish you all the very best!
The writer is CEO, Bankbazaar.com Read Adhil Shetty's columns