Reduce your debts, cut expenses and choose investment products prudently to build your retirement corpus.
The Covid-19 pandemic has impacted retirement plans. The market is currently highly volatile and the portfolio of investors in almost every age group has witnessed a steep fall in value. The planning towards achieving our retirement goals may now require readjustments. Here are some tips to help overcome the financial impact of the pandemic in order to meet your retirement goal.
Review your retirement goal
If you are an early jobber, you may quickly recover from the Covid-19 setback. However, if you are in the middle of your career or close to retirement age, you need to review your retirement goal. Depending on how many years you have to your retirement, you may either need to scale down your retirement corpus goal or—and this may be the more pragmatic option—delay your retirement by a few years in order to achieve the desired corpus.
The interest rate on most of the low-risk investment products has come down. So, post-retirement, you may not be able to get adequate income by investing your retirement corpus only in FDs or small saving schemes. In such a case, you should be ready with a plan to trim your post-retirement expenses as well.
Reset your investment strategy
Your pre-Covid investment strategy may not work for you during the post-Covid period, due to two reasons: your income may have decreased and your investment avenues are likely fetching lower returns than your expected ROI. The first thing you need to concentrate upon is to try to find ways to reinstate your income to the pre-Covid level. You may want to focus on ways to open new income channels by trying to monetise your skills and hobbies.
This would ensure your essential expenses and debt repayments are not impacted. The next thing to do would be to reassess your risk appetite as per the current economic situation and accordingly select investment products that can help you to reach your retirement goal. Remember, your investments should be adequately diversified and meant for your long-term financial goals.
Reduce your expenses
You should also focus on cutting down your expenses and redraw your expense priority list. If you are facing an income cut or a job loss, you should immediately focus on clearing your debts, minimising unnecessary expenses, and exploring ways to hike your income. The lockdown situation should actually help you as some of our expenses, like daily commutes, travel plans and discretionary shopping may have reduced.
If you’re planning to go on a strict financial diet, look for ways to save in big chunks, like moving to a more affordable house, or commuting cheaply, and consuming frugally. The more you save, the better your chances of overcoming the loss of income or the underperforming investments.
Manage your debts aggressively
The interest rate on most retail loans has come down after the recent reporate cut by the RBI. If you have an existing home loan, try to repay it aggressively. If you can now repay the same EMI, chances are your loan tenure will get shortened and your overall interest burden will reduce following the interest rate dip. Also, take the 3-months moratorium facility only as a last resort option, and have a plan to start making additional prepayments as soon as the moratorium ends. The point is to clear your debts faster so that you can focus on building a bigger retirement corpus.
Keep your will ready and updated
Estate planning should also be your priority in this difficult time. If you are close to your retirement age, it should be clear to your family who your legal heir would be and how your property and assets will be distributed to them after your death. If you are young or in the middle of your career, even you can prepare your will according to your current assessment of risks.
The author is CEO, BankBazaar.com