How to prepare for your retirement

It is but natural; people always think about today and not tomorrow. But, one can live comfortably only if he plans in advance, which many often ignore and they depend on children in their twilight years. Unfortunately, people never understand the realty that the children are not the retirement solution.

Life expectancy has gone up, and hence there is longer post-retirement period which results in huge expenditure in term of healthcare. If children do not have enough money or are not willing to pay for health bills, parents end up in a difficult situation.

Then the solution is in advance planning and building a retirement fund. Let us discuss how? The first step is to evaluate needs and expenses in the post retirement period. To calculate corpus required for your comfort living in the post retirement, take the inflation rate, number of years left for retirement and rate of return etc. For instance, if you see an expenditure of Rs 25,000 per month, adding the inflationary rate of 6% (the present rate) and considering that you are bound to retire after 30 years, you need to save Rs 2.1 crore corpus at 8% interest.

After fixing the corpus amount, you have to identify various saving options which will generate a saving equivalent to the corpus amount by the time you retire. The retirement portfolio must be a mix of debt and equity. It may be more in equity during early years and as you progress towards retirement date, you may have to reduce the equity amount considering the risk tolerance levels.

These days you have multi-product options, besides retirement focused pension funds. But a word of caution - most of the funds under the garb of retirement plan, especially insurance-linked funds, are expected to be non-transparent and loaded with huge costs. Unless you understand fully well, it is always better to avoid investing in such funds.

Always start investing early, so that, you need not be anxious as retirement is nearing. If you start early, you have a longer period to save and it will reduce monthly contributions. More so, with the job pressures raising at the workplace, having early saving habit will give more confidence to face eventuality.

Though equity related investment is ideal for long periods, the suggestion always goes by the caution that equity is risky and the investor must possess the stringent financial discipline, and adhere to the budget and fix the money for investment on a monthly basis.

Mind you, it is very crucial for not compromising on the retirement goals and never cut the saving amount for retirement to fulfill your present needs or luxuries. It is always good to review your retirement portfolio periodically and enhance it whenever you get increment.

The major expenditure in the post retirement period would be healthcare, which is rising at a rate of 14 to 15 percent annually. Take health insurance at an early age and continue without any gap, which will take care of you largely during later years. Do not underestimate the importance of retirement planning. It is a vital part of financial planning for each one of us.