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In great majority of cases, people do not bother
to plan for their retirement years until their late forties. The exuberance
of youth, over involvement in the affairs of their own little world (spouse
and children) preclude any possibility of a serious thought being given to
something that is going to happen decades hence.
You are over 40 and you
haven’t started seriously saving for retirement. You have more debt than
you would like to admit, or less investment.
It is never too late to
do a good turn to yourself. If not already done, you can plan your
retirement from today itself. You can catct up as long as you are willing
to change your habits and start thinking of retirement. Late beginning has
its own blessing in as much as you can do with only a highly focussed
approach to ensure a great and gala future since the rest of financial
obligations are expected to have been already taken care of by this time.
The first thing you have
to change, though, is your mind. Give yourself a second chance of attaining
wealth. Get over the feeling that it’s too late to save for retirement
because your future is far too important to throw in the towel.
Planning for the post
superannuation days, however, is not as simple as it is often thought or
made out to be. People often underestimate their financial requirements
during the period of their eternal lay over. Increase in longevity and
changed life style have made a big difference to the amount of money one
would require during his unending sabbatical. While drawing up an estimate
about the total financial requirements during the golden years of one’s
life, it is better to err on the side of caution. As many have realised,
the margin of error turned out to be much bigger in real life.
Let us now go over the
main heads of expenditure which will have to be taken care of. Most of the
financial advisers tend to overlook some of the most important requirements
thereby exposing their clients to avoidable embarrassment.
Defining Goals
Properly
defined financial goals are extremely essential. Defining of goals by
putting them on paper in precise and simple language serves two objectives.
In the first place, it makes you give a commitment to yourself to perform a
certain act which involves savings and investment on regular basis and
secondly the clarity does not leave room for ambiguity as to the
interopretation of the commitment.
With the help of a
Financial Planner, you should map your total retirement assets, your
retirement expenses, rate of return and various investment options. You
should also keep a realistic view of how much you need to save and how much
you can afford to withdraw every year after retirement which will depend on
the assumed life expectance and inflation rate.
We shall now list below
the main heads of expenditure including those which people generally do not
take into account or tend to overlook as being of little consequence. This
is a grave omission and it has made many an individual face humiliating
family and social situations.
The following expenses
would need to be taken care of even when one has retired from work life.
1. Food
and Clothing: You are expected to maintain your own kitchen.
The expenditure on clothing, however, can see a decrease because there is
no routine office to attend to.
2. Utilities:
Electricity, water and phone. Educated and IT savvy retirees cannot imagine
life without the internet and mobile. Money outgo under this head is going
to be fairly high thanks to escalation in energy prices.
3. House:
Maintenance of house, hobbies and expenditure of purely personal nature.
4. Charity/Pilgrimage:
You did not get time for anything spiritual but this mindset may have to be
changed. And of course, whether you like it or not, body is going to demand
serious look after henceforth. Timely redressal of any untoward physical
development will have to be a self financed activity. All this is going to
cost a fair amount of money for which the provision made always falls short
of the actual requirement.
5. Cash
gifts, social and community donations: On
occasions like marriage, birthdays, anniversaries.
Implementing the Plan
For
those in employment, they must begin the exercise by first matching their
contribution to the retirement plans, or funds with those of their
employers. For the rest of us, the road and the route is the same i.e.,
owning a part of the business through the equity route as part of our
overall portfolio to give it a Midas touch to offset the moth effect of
inflation effectively.
First of all, purge your
mind of subsisting on interest for it is no longer going to suffice.
Moreover, it is not subsistence but super existence that we are aiming at
and this would definitely require far larger sums of money than the passive
life style which our seniors maintained and were content with not long ago.
You must accept that risk and returns have a very close relationship.
It is not necessary for
everyone to be an expert in equity investing. Moreover, as we grow in years
the percentage of our savings which it is considered advisable to put in
stocks goes down. With all kinds of technical and fundamental analysis
available for the asking capped by the tons of experience which the mutual
funds apply to funds entrusted to their care, rubbing shoulder with equity
should not be so difficult or challenging. In fact, after a few encounters,
equity investing will become an exciting game worth the risks involved.
If you are not
comfortable adding more money to the retirement schemes every year then you
should try to invest in funds which a lock in period. This will not only
help you from staying away from your retirement corpus which will be built
over a period of time.
Planning for the retirement would involve keeping
in mind the following:
That the amount of money
worked out on the basis of cost of living a decade or two from the date of
retirement must be worked extremely carefully.
All possible heads of
expenditure must be considered while working out the future money needs.
That the traditional
approach of living on interest and not touching the capital is not going to
work.
Reverse mortgages and
nibbling at the capital are a course of raising funds to meet unexpected
expenses when one is not in working order.
Business, industry and
agriculture are the only known sources of wealth creation. And your money
will also have to participate into one of these known wealth creation
activities. The returns can be manifold as compared to any passive parking
of money but not without risk of losing a part or the whole of it. Before
you commit your hard earned money to market related instruments like stock,
it is desirable that you acquaint yourself with the preliminary knowledge
of the way the things work, and the methodologies adopted by the people in
the world of finance and business.
What percentage of your
savings you can afford to put at risk of losing it must, therefore, be
worked out along with the detailed plan for savings and investment to take
care of your financial requirement during your indefinite sabbatical.
Disclaimer:
The information provided here is only for informative purposes and nothing
more. It is not in any way to be construed as authoritative. Always consult
your financial advisor before taking any decision. It is informed to the
people that this information that is provided here is not to be acted upon.
In spite of our advise, if any person acts upon the contents of this web
site and incurs a loss, they do it on their own risk. We are not to be held
responsible for any loss, incorrect information etc.
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Other Pages on Financial Planning:
Introduction Asset
Allocation
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