With life expectancy increasing by a fair margin along with inflation and healthcare costs growing, people might face the problem of their savings and investments falling short.
Some start early, some start late, but we all plan for our retirement, mostly to financially secure those final years, considering most people retire at 60. Industry experts suggest it is important to make sure that savings and investments that are made to secure your golden years do not fall short. Over the past decade, with life expectancy increasing by a fair margin along with inflation and healthcare costs growing, people might face the problem of their savings and investments falling short.
Generally, people tend to look at the age group of 55-60 years when they wish to retire, and experts suggest one must consider and secure one’s nest egg for at least another 20 years or more after retirement. If you were to outlive your retirement plan, you must also have a contingency plan to support you.
Planning for your retirement is not a complicated affair. However, if you have not started planning yet, find out how should you go about it, so that your funds don’t turn to be inadequate for your sunset years.
- If you think you are going to outlive your funds, starting early is the best solution for lowering the risks of outliving your savings. Working for a few more years can make a huge difference if you think your retirement funds are going to be inadequate. The important thing is to be aware in advance that such a situation can arise and experts say from the perspective of investment planning, one should add some equity through the mutual fund to the fixed income portfolio. Investors must take stock of their savings from time to time to ensure that the retirement corpus is adequate.
- For those who start planning their finances later in life, experts suggest they should have a higher proportion of their savings in growth assets, and then slowly move to debt instruments while nearing retirement. Early- and mid-career professionals, however, have significantly more time to retire and, therefore, have the chance to build a large retirement corpus through equity investments. Financial advisors say, despite its volatile nature in the short-term, over the long-term equity is more likely to deliver returns to beat inflation.
- Your opportunities could be limited if you are approaching retirement or have already retired. Experts say in case of a shortage, investors can either increase the number of investments; aim to generate higher returns, and reduce the number of expenses. Along with cutting down on luxury expenditures and decreasing unnecessary expenses, investors should also focus on greater tax efficiency on his/her retirement income. One can also allocate a small portion of one’s investible surplus in inflation-beating assets while considering reverse mortgage or relocating to a cheaper location or smaller residential home.
- If you are planning for early retirement, it is critical to be clear about your post-retirement financial goals with sufficient corpus for annuity income, adequate investments to take care of your medical expenses and life expectancy. Experts say investors must also have specific and time-bound goals with how they want their retirement corpus to grow. Subsequently, they should make changes in their investment portfolio. Investors should also ensure that their existing cash-flows do not suffer while making investments.
- Investors, along with planning for retirement, should also have adequate risk coverage such as health insurance, life insurance, critical illness, and disability covers. Especially if you have other responsibilities, such as child’s education or wedding, you should invest for each of these goals separately, so that the risks to a long retirement can be mitigated significantly.
- To understand how much you will need for retirement, it is always better to get professional help before calculating the retirement corpus. You can also get the help of retirement corpus calculator, but for that, you have to know the inflation-adjusted future value of your current monthly expenses, along with your estimated rate of return on investments, the rate of return after retirement, inflation post-retirement, and life expectancy.
- Investors should also determine the ideal product mix between debt and equity. During the retirement years, one must also have a mix of both growth and fixed income investments, as the period in retirement is generally long. Low-risk instruments, such as Fixed Deposits, Public Provident Fund, along with equity funds, among others, should be considered. Industry experts say, in the early stages of one’s career, one’s contribution to Provident fund could be 25-30 per cent, which gradually could be increased to 80-85 per cent by the time the one reaches 55 years.