Here’s How To Retire Rich

To retire rich should be one of the key long-term investment goals for investors. However, few investors who do what it takes to retire rich. While some of them do not even plan their investments as they get overwhelmed by the challenge of accumulating a large corpus to lead a comfortable retired life, others delay the process fearing that they might end up making wrong investment choices. In reality, retirement planning is not a difficult goal to achieve provided one follows the right steps. Therefore, to retire rich, you must focus on having a proper investment strategy during both accumulation as well as disbursement stage. Here is what you need to do:

Start investing early: By starting the investment process early, you get enough time to build a large corpus with smaller contributions through power of compounding. Of course, the key is to continue this process through your time horizon.

Invest systematically: A disciplined approach coupled with an appropriate asset allocation can make it easier for you to achieve this important goal of your life. Remember, investing in a portfolio dominated by equities can generate positive real rate of return which is crucial for beating inflation.

Invest in tax efficient and simple investment vehicles like mutual funds: Tax efficiency of returns on long-term investment portfolio built through mutual funds can improve your post-tax returns. Moreover, mutual funds are flexible thereby making it easy for you to realign your portfolio as you near your retirement age.

Plan your investments after retirement judiciously: Another challenge for you could be to generate adequate income after retirement. Many retirees err by investing their entire retirement corpus in low yielding instruments with a lock-in period. By doing so, they not only compromise on liquidity but also fail to keep pace with inflation. To enhance the overall portfolio return, you must include market linked products such as debt and debt-oriented hybrid funds in it.

Remember, a proper strategy and asset allocation can ensure that you don’t outlive your money. To begin with, you must get a fix on how much you will need every month to take care of your expenses. If you are eligible for pension, it must be taken into account while assessing your monthly requirement. It is also important to factor in the impact of inflation on your monthly expenses. The amount so derived will help you decide the kind of returns you will be required to generate on your retirement corpus and the required portfolio mix to achieve these returns.

For example, if your retirement corpus is Rs. 50 lakh and your monthly expenses are say Rs. 30,000 (Rs. 3.60 lakh annually), even a return of around 7 per cent would suffice. However, considering inflation to be at 7 per cent, you will require a monthly income of Rs. 60,000 after 10 years and hence will need to generate a return of around 14 per cent. If you decide to lock in your investments in instruments offering fixed but lower and tax-inefficient returns, you are likely to struggle to keep pace with increasing expenses. Therefore, you must design your portfolio in a manner that not only meets your regular income needs but also provides an opportunity to earn capital appreciation to take care of inflation over time. Besides, liquidity provided by the investment option has to be given its due.

Some of the options for generating regular income after retirement are Post office Monthly Income Scheme, Senior Citizens Savings Scheme, bank deposits, debt and debt-oriented hybrid funds of mutual funds, NCDs and tax-free bonds. All these options, except debt and debt-oriented hybrid funds, offer guaranteed returns. Therefore, it is important for you to know more about these funds as they have the potential to generate higher return albeit with some volatility.