You have been saving for retirement for quite a few years and now you are fast approaching your retirement age. With a few good years still left here are a few things that you can do to reduce your anxiety and stress and ensure you have a comfortable retirement. In case, you are a young individual and your parents are about to retire then this article will help you prepare them for their Retirement.
1) Calculate the Retirement Fund corpus – Your retirement corpus should be large enough to cover your living expenses that too inflation adjusted till your lifetime. Take into account your annual grocery and utility bills, salary of your maids or driver, and EMIs if any. If you are staying on rent and will continue to do so then you need to take this also into consideration. If you own an apartment in a housing complex then you should take your society maintenance charges into account too. From all these expenses deduct any pension that you might receive post retirement. Now this expense will get inflated every year at 5%.
A retirement fund of 50Lakhs when invested to generate a return of 8% will be able to provide an annual income of 2.4 lakhs and will increase at 5% to adjust to the growing inflation.
2) Go all in– If you started late or have simply not managed to come close to what you planned to accumulate then go all in. You can increase the amount you invest to make up for the possible short fall in your target. If this is not feasible then you could delay your retirement by a few years- if that is an option and in the mean while your money could get some time to grow.
3) Repay all your loans– If you have any outstanding loans be it personal or home loan, it is advisable to repay before you head for your retirement. With no salary you and your spouse will be dependent on the income from your investments and you don’t want to put the burden of your EMI on your retirement fund. Also do not take up any new loans for the same reason.
4) Invest in tax-efficient products– There are many options for saving tax, however, most of them have a long maturity period and their interest income get taxed annually. You can optimize your investment by investing in ELSS which are the tax saving Mutual Funds. They offer 80C tax benefit and generate a return of 15% or more and have a lock in period of just 3 years. The interest income from ELSS are tax exempt and are hence great for saving tax and wealth creation.
5) Medical Insurance is a must– Every year Medical sector sees the highest inflation at 10% or more. With the rising cost of medical care you dont want to delay buying a health insurance for you and your dependents. As you age the premium charged for buying a new policy increases and after the age of 60 a lot of benefit also might be excluded.
6) Don’t shy away from Equity– Most people are under the impression that when you are close to retirement you should completely stay away from Equity Mutual Funds. This is not correct. Even if you retire Equity Funds will continue to be a part of your investment portfolio but in a smaller proportion. This is because there is no way of knowing how long one might live thanks to the advancement of medical sciences and Equity mutual Funds will ensure your retirement fund doesn’t run dry by then. If your portfolio is Equity oriented then you should re-balance your portfolio by reducing (not eliminating) your equity exposure and reinvesting more into Debt Mutual Funds.
7) Find out about Reverse Mortgage– Reverse Mortgage is the opposite of a home loan. Under reverse mortgage senior citizens receive a regular income from a lender which could be a bank or any financial institution. The maximum loan amount can be up to 60% of the value of the house. The owner has the option of monthly, quarterly, annual or even lump sum payment.
Reverse Mortgage works well for senior citizens who did not manage to create a retirement fund and don’t want to depend on their children for financial support. So instead of losing heart you could get a reverse mortgage on your home. Also it is a good idea to know what options of extra income are available.
8) Stay away from quick money making schemes– It can be very tempting to invest in a scheme that could double or triple your money in a very short time, but please stay clear of people offering such schemes. Always remember higher the return higher will be the risk.
Also ignore any advice from well wishers suggesting that you invest your retirement fund into a new house in the hopes of selling it at a higher price later. Your retirement fund is supposed to last you a life time. Real estate is not the most liquid investment; you don’t want your money locked away when it should be generating income for you.
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