You should be prepared for your retirement, both mentally and financially. Failure to prepare could cause you money worries in retirement, so it’s important to plan carefully. You should also regularly check whether you are on track to meet your retirement goals. Here are seven ways to help you assess how you’re doing, and whether you need to change your approach:
The first step towards tracking your retirement goals is to know what your goals are in numerical terms. Arriving at this number requires a sound understanding of your current finances, economic aspects impacting your investment, size of your corpus etc.
Inflation and real return are key aspects to consider whilst investing. This table offers a rough benchmark as to the quantum of savings required based on your age:
|Current Age||Ideal amount of retirement savings required|
|40||3X of annual salary|
|45||4X of annual salary|
|50||5X of annual salary|
|55||6X of annual salary|
|60||7X of annual salary|
|65||8X of annual salary|
2. Earmark parts of your existing investments towards retirement goals:
Even if you have already been investing, it’s time to streamline your fragmented investments by aligning them with your retirement goals. NPS (National Pension Scheme), and EPF (Employee Provident Fund) are two long-term investments that are suitable for retirement goals.
3. Timeline of your journey:
The time that you start your investment journey is quite critical. Often, when you are younger, you do not think about retirement. However, time is money in the world of finance and investing, hence the earlier you start, the better. While living in the present is a perfectly fine concept, when it comes to investments and financial goals, you need to invest early to achieve your goals comfortably. If you haven’t yet started investing for retirement, there is no time like the present. You may have to invest more to make up for lost time.
4. Efficient debt management:
Good debt management is critical for retirement planning
. If you have a number of loans running, you should evaluate which ones to offload in order to ensure that your burden is reduced considerably. Draw up your schedule of debt to identify the loans with the highest interest rate, and tackle them first.
It’s important to enter retirement without any debt. The savings on your EMIs (due to repayment of debt) can be routed back towards your retirement savings, thus helping you build a sizeable corpus.
5. Invest in your health:
Many people neglect their health, even though the possibility of ill-health increases as we age. It’s important to focus your energy on building habits for a healthy lifestyle. Also re-assess your health and life cover needs, and increase the cover to ensure that it helps you manage the medical expenses you will incur in your post-retirement years.
6. Own a property:
It’s always better to lower your fixed expenses as you approach retirement. If owning a dream house is on your list, work towards it now. It is much easier to build towards a goal with lower fixed expenses such as rent, and owning your home will also give you a sense of security and satisfaction.
7. Review and monitor your investments regularly:
Monitor your investment to make strategic realignments based on market trends, and to adjust risk according to your risk appetite. This will help ensure your plan is always aligned to you at every stage in life.
For instance, since your risk appetite reduces as you age, your exposure to equity in your earlier years should begin to decrease over time. By the time you retire, your exposure to equities should ideally be low.
The three pillars of effective retirement planning:
a. Asset allocation:
You should build an adequately diversified portfolio to achieve your desired retirement corpus.
b. Amount of investment:
The amount of investment should gradually increase over the years as your income increases. This will ensure that you build the required corpus comfortably.
c. Time horizon:
The sooner you start the journey, the better you can harness the power of compounding.