When you retire you surely want to lead a life of peace and tranquillity. Of course, you may still be a very earthly person and not want to retire to some remote island. But you would surely want to be independent and enjoy your space along with your spouse. That will surely call for some planning. Start the process of preparing for your retirement at least 2 years before you actually retire. Here are 6 steps for the same..
1. Ensure that your retirement corpus is liquid and tax efficient..
Over the last 25 or 30 years you have relied on a varied mix of assets to see you through your sunset years. The last thing you want to see is your corpus being depleted in the later years due to overexposure to equities. After all equities are, by nature, volatile and sharp gyrations are part of the game. Start the process of converting your retirement corpus into risk-free assets at least 3 years in advance so that when the appointed time comes you do not have to indulge in distress sales. Of course, there is the risk that you may lose out on some returns in the later years but that is still better than taking on unnecessary risk upon yourself. Also ensure that your corpus is tax-efficient. You do not want to discover that your corpus is going to attract a tax of 30%. That completely changes the economics of retirement for you. Consult a tax expert well in advance to check your post-tax retirement corpus.
2. Ensure that there are no liabilities left in your name..
Debt is really a four letter word if you are on the verge of retirement. You would have surely completed your home loan and car loan liabilities by then. But there are still some liabilities that stay with you. For example, you may have taken a personal loan at a later stage to tide over a crisis. Alternatively, your son’s education loan may still be unpaid. These are the kind of liabilities that you do not want to entertain after your retirement. When you plan your retirement corpus allocation, first ensure that any outstanding loans are closed. Of course, you can negotiate with the banker to close the loan without any closure charges but the moral of the story is to enter retirement without any debt against your name.
3. Insure yourself medically and also let your spouse get insured..
Medical costs have shot through the roof. After your retirement you are going to fall back upon your investment corpus to see you through the later years of life. You do not want medical costs to create a mess with your finances, especially the kind of costs that hospitals load on you nowadays. Make the money work for you by taking a floater policy that gives you a good cover at a reasonable cost. The bottom-line is that your insurance policy must pay your medical costs to the extent possible.
4. Create a retirement budget and cut your coat as per your cloth..
You may have led a slightly extravagant lifestyle before your retirement but then the situation was different. You had a regular salary flow and that will not continue after you retire. As a measure of abundant caution, you need to start getting a little more circumspect. We are not suggesting that you entirely cut down your expenses but look at plugging holes where money is being wasted. You obviously need to spend on food, clothing, medicines etc. But you do not need to splurge on eating out frequently. There are certain expenses that you can certainly curtail. Try to draw up a very conservative budget and make it a discipline that you will exceed that budget only in the event of an extreme exigency. That kind of discipline will go a long way in sustaining your retirement corpus longer.
5. Retirement does not mean the end of equity..
Many believe, erroneously so, that once they retire they need to give up on investing in equities altogether. That is hardly the case. In fact, better medical facilities mean that people live a post retirement life that is as long as their actual working life. That means, you obviously need to create wealth and make your money work for you even after retirement. Of course, you need to keep your exposure to equity lower than your debt exposure but remember that since you do not have any liabilities, you can actually make the best of your risk appetite. Take the help of equities to give you that kicker return.
6. Get a challenging life after retirement..
Of course, you are entitled to enjoy your sixties but thing have changed substantially nowadays. You do not have to literally hang up your boots. You have surely built up a strong network over the last 35 years and this is the time to leverage it. The entire world is going digital and there is a tremendous demand for freelancing, supply of digital content, curator of content, consultancy projects etc. You can bring in your years of experience to bear and in the process you can also monetize your intangible skills. While you may be excited about doing nothing, it starts gnawing at you after some time. As long as you are capable of keeping yourself busy, it makes sense to actually keep yourself busy. The advantage is that you can now do it at your own terms.
Retirement is a normal process we all need to go through. The better you plan your retirement, the more peaceful it is likely to be!