Do Not Mess With Retirement Planning

When it comes to financial planning, retirement is one long-term financial goal that is nonnegotiable. The reality of life is that retirement is one phase in life that no one can wish away. The best we can do is to be prepared. Despite this being the case, investors at large have a lax attitude towards retirement. There was an entire generation of public sector employees who never had to worry about planning for their retirement phase as there was a known source of steady income. However, today with the workforce increasingly engaging in the private sector, formal pension is soon becoming a thing of the past. Hence, it is very important to plan for one’s sunset years.

Importance of Planning
The starting point of retirement planning is based on the assumption that one would require to live off at least 20+ years without an income. Meanwhile, the cost of living is continuously on the rise, partly thanks to the persistent inflation and also due to the steady double-digit rise in medication and hospitalisation. These days, thanks to medical advancements, having a long lifespan is very much a possibility. So it is all the more important to have a sizeable kitty at the end of one’s work life. As a lay individual, it is important to understand that this kitty will not be ready overnight. It requires persistent saving over several decades.

Often investors think that since retirement is several decades away, we will start saving for it in the last decade. However, what they forget is that when starting to save at such a later stage, the amount to be saved per month is unrealistically high. However, if the savings were initiated a couple of decades back, the amount required to be saved every month would have been much more manageable. No matter how small the amount is, when you save every month in a disciplined manner, you allow the magic of compounding to take place. The risk you run by starting late is having no access to compounding.

No Loans Available
During one’s working years, you would be inundated with calls for various types of loans offered by different financial institutions. This is because they know you have a steady salary which is coming in every month and you can make good of the payment. However, the moment your income tap closes off, financial institutions are no longer willing to extend you a loan. So, one has to be totally conscious of the fact that post retirement you won’t have any cushion to fund your needs no matter how good your credit score may be. In effect, you are on your own when it comes to money matters.

Planning for Retirement
No matter whatever your target amount for the retirement kitty, everything is achievable if you start saving early. Given that it is a long-term financial goal, one can invest steadily into equity funds. Over the years as the income rises, keep increasing the savings rate so that over time the amount will keep pace with the rise in costs. In case the entire exercise seems to be overwhelming, the optimal approach would be to consult a financial advisor. In such a case, the financial advisor after taking into consideration all your financial goals, risk appetite and investment horizon will recommend investment avenues which will help achieve your target in a comfortable and time-bound manner.

Investment Avenues
Since retirement is a long-term goal, investors can consider opting for equity-based schemes. This will help an investor to tap into the long-term potential that the asset class presents. However, if you are a conservative investor, then you may consider hybrid scheme categories such as the balanced advantage or multi-asset category of schemes. Here, in balanced advantage, the amount you invest will be spread across equity and debt asset classes. On the other hand, a multi-asset fund, as the name suggests, will invest across several more asset classes. Here, a typical fund will invest in equity, debt, gold and a few more asset classes.

Do remember that as you near the retirement age, in case if you had opted for equity investments, start transferring your asset to a debt-based fund. This is to protect the capital from market volatility. There is a lot of research material available online which you can study to check out the many options available to start saving early and build up a good corpus for later years. To conclude, retirement is a phase in life where your risk-taking ability is at its lowest. So build a corpus over the years to face any eventuality in life. The earlier you start your savings, the easier and more fruitful the journey will be.

The writer is Proprietor, Profit Mantra  Email: profitmantraonline@gmail.com  Website : www.profitmantra.org