How to plan for a relaxed Retirement?

Introduction:

A retirement that is financially well-cushioned enables you to enjoy the desired comforts and luxuries. But making this golden period relaxed and secure entails a concrete retirement plan. Retirement planning is necessary so that you can foresee and don't have to compromise your lifestyle post-retirement. It is an elaborate exercise, and you should ideally start it as early as possible.

6 Step guide to ease out the Retirement Planning process for you

Define your Retirement Goals

It is the first step in the planning process. You should have a fair amount of clarity about what you are expecting to do post-retirement. You will be able to define the consequent financial goals only if you know your retirement wish list. It could be spending your life post-retirement with your spouse at a distant vacation home or paying for your children's wedding. You may want to take your dream vacation to some exotic place or maybe just having enough financial security to live a simple and happy life.

Identify the Time Horizon

It would help if you defined your expected retirement age. It will help you understand the time you have at hand to plan and execute your retirement strategy. The sooner you start your retirement planning, the longer the time frame you have to grow your investments. Investments grow faster due to compounding. More time gives you more scope to cushion volatility. Thus, a longer duration between now and your retirement means you can aim for higher returns. Stocks and other equity-based instruments would be a good investment choice in this case, as they have a historical trend of performing better than other investments over a long duration.

Inversely if you start planning your retirement relatively closer to your retirement age, it’s better to avoid risk and look at rather conservative investments like government securities, bonds etc. That is because your saving corpus is comparatively larger by then, and inflation will not necessarily exceed your investment yields.

Anticipate your Expenses

You can plan for a sufficient bank balance once you have clarity about the day-in and day-out expenses your life post-retirement would entail. You can do this by creating a post-retirement monthly expense estimate based on your current spending habits. It would help if you also considered that with the cost of living increasing with each passing day, so would your expenses post-retirement. That would be even if you lead a simple life. As your body ages, you should also keep provisions for daily healthcare needs, doctor visits and health insurance. There should also be a plan to face any significant medical contingencies that may arise. It is a good idea to equip yourself with health care insurance to safeguard you from a substantial amount of healthcare expenses in the future.

Identify and align your Income Sources

You need to identify the sources that will fund your retirement. There could be several sources like your current pool of savings, investments, employer pension, gratuity, family inheritance, part-time job after retirement, a business you will start post-retirement, etc. It would be best to have a realistic or slightly conservative calculation about the total income you will have. Based on that, you can find the income gap you need to bridge by building a sizeable retirement corpus.

Tax Planning

When it comes to investing for the long term, you have to ensure that you fill two needs, i.e. wealth creation and tax-saving, with just one deed. Public Provident Fund, Equity Linked Saving Schemes (ELSS), National Pension Scheme (NPS), Mutual Funds and Insurance Plans are some investment options that can guard your savings against tax while helping you build wealth. Let's not forget, your post-retirement income is also taxable. Some of the investment avenues to park your wealth post retirement would be the Senior Citizens' Saving Scheme (SCSS), Post Office Monthly Income Scheme (POMIS) and debt oriented Mutual Funds.

Additional Read: Which are the Best Tax Saving Mutual Funds?

Additional Read: NPS Investments Tax Benefits

Additional Read: ELSS vs PPF: Which is the better tax saving option?

Identify your Risk Appetite

Returns and risk are intertwined. That’s why you have to decide the risk you’re willing to take. Your risk profile will determine the type of investments that are best suited for your retirement. There are a plethora of investment options for you. Some may seem promising, some not so much. But as a general principle, diversified investment portfolios are a good bet for managing risk.

Conclusion:

Building a comprehensive retirement plan can be challenging. It's a good idea to get your family or spouse involved in the planning process to help you out. A financial advisor can help you to be on the right track with the best investment options for your retirement. It is ultimately important to have realistic expectations about your retirement returns and the quality of life you intend to spend post-retirement. They should be in tandem for your secure and stress-free retirement.

Additional Read: Are you a senior citizen? Here's how you can save on tax