Stepping into retirement can be a tough decision psychologically for many people. Here's a 4-step guide to realign their investments and optimise on the returns.
Stepping into retirement can be a tough decision psychologically for many people. Just the thought of expenses at a time when your salary or business income drops to a bare minimum— or, worse, stops altogether — may sound scary. However, while planning for retirement the aim is not to be lost and plan for it in a comprehensive way.
But here is where most of the retiree’s stumble. It is not that that they are poor, it is just that they have invested their money in a manner which is not generating regular returns. Let me explain this through an example: Mr. Sadagopan, a professor, was about to retire after serving as a professor over the last 30 years. He was due to get just about Rs 25 lakh as his gratuity and Provident Fund – which frankly wasn’t enough considering the expenses of his and his wife were close to Rs 80,000.
He went to a financial planner who helped him build a 4-step guide to realign his investments and optimise on the returns.
While discussing with his advisor, Mr. Sadagopan realised that most of his investments was blocked in real estate and gold bars. He needed a restricting of his investments in such a way that they were liquid enough to provide a regular income.
The first step before you retire is to analyse the source of income. Ensure that a regular sum is allocated to you on a monthly basis to fulfil your basic requirements. Understand that fixed deposits that don’t beat inflation, investments in real estate that don’t yield much rental income or capital appreciation and gold investments are common assets that don’t yield much returns. Don’t be asset-rich-cash-poor.
Another mistake which Mr.Sadagopan had made was having misdirected expectations of his expenses. Retirement is a lifestyle change, hence it is necessary to cut back on extravagant expenses and focus on those which fulfil your needs. One of the simple ways to understand your expenses is by creating a comparative list of your current plan and retirement plan based on the financial and personal well-being.
List down every expense incurred on a monthly and annual basis. Also, focus on where you are residing, whether in the current home or planning to relocate according to the standard of living you choose to live on for, by considering the maintenance charges on a monthly basis of the housing property.
When you are planning for retirement, often the age bracket of 40+ comes into account. The health issues start streamlining as you grow old. You should determine ways to obtain affordable health care and the costing for the same. Factors like medical insurance should be taken into consideration in your retirement phase. While building a retirement fund, this factor should have a large room when allocating your budget.
Loss of spouse
Death is a hard thing to deal with, both emotionally and practically. You should ensure that you are well invested in a life-insurance policy and other instruments and as a nominee you should always consider including your partners name other than your rest of the family members. Also, make sure your partner knows about all your investments and have access to all your documents with any passcodes or the pin numbers, which will ensure an ease in the process of reaching out to all the documents smoothly. Do not forget to make a Will. You may not want your spouse to be dependent on your children and it’s important to ensure that your money goes into the right hands. This will not only help in protecting your loved ones, but also, in supporting them monetarily.
As you grow old, make sure you grow your portfolio with right asset allocations. It will help you live a hassle-free happy post-retirement life.
(By Rahul Jain, Head-Personal Wealth Advisory, Edelweiss)