A few simple steps could make the difference between just retiring and retiring rich. Let us look at some such tricks that could supercharge your retirement planning and savings.
The most important trick is to start saving early for retirement. The earlier you start, the more you benefit from the power of compounding. An additional few years will result in a substantial difference in the value of the corpus built through investment over a long period of time.
Let’s suppose A starts investing R50,000 a year at the age of 30, while B starts doing so at 35. When both reach the age of 55, while A has a corpus of R61 lakh, B has only R40 lakh (assuming both earned 8% interest per annum). This shows that even a few years can make a substantial impact on the retirement corpus in the long run.
One should make investments towards retirement savings via the electronic clearance service (ECS) route, making the whole process automatic and ensuring that no surplus expenditure gets in the way of your retirement planning.
Pay off debts
Paying off all debts before retirement helps avoid interest payments. As sources of income dry up once you retire, it is important to pay off debts as they add to the financial burden.
If, despite your efforts, you haven’t been able to pay off all dues before retirement, ensure that your budget includes monthly payments to eliminate them.
Explore options to augment your income, such as becoming a consultant or a part-time teacher, after retirement. This will not only supplement your retirement savings, but also keep you active.
Pension funds offered by mutual fund houses can also be a good avenue to invest for retirement. These funds invest up to 40% of their assets into equities, mainly to beat inflation, while the rest is allocated to debt instrument, aimed at providing stability and capital protection to the portfolio.
These funds allow you to invest systematically until retirement, and offer a systematic withdrawal plan, where you can redeem at chosen intervals, i.e., monthly, quarterly, half-yearly or annually, for regular income during retirement. Typically, pension funds have a progressive plan, which automatically switches one’s investment to a moderate investment plan when one crosses 45 and, after reaching the age of 60, the investments in the moderate plan are shifted to a conservative plan.
The biggest expense after retirement is likely to be medical bills. A comprehensive health cover will ensure that even post-retirement, your savings can be used to fund your lifestyle; the insurer will take care of large medical outgoes (although you will have to still budget for medicines, and other smaller expenses).
Ideally, one should be able to retire when their income from savings matches the expenses, and if one can achieve financial independence earlier in life, it gives one the freedom to choose when to retire.
The writer is CEO & founder of Right Horizons