Retirement planning is a continuous process. To have a secure, comfortable, and fun retirement, you need to build the financial cushion that will fund it all. This article will explain the importance of retirement planning.
5 important retirement planning steps you should adopt
Following are some of the important steps that need to be incorporated in your retirement plan:
- Understand your time horizon
Distinguishing your “retirement phase” is necessary to understand when to begin planning, the minimum corpus needed for comfortable life post-retirement, and how many years you have in hand to build your wealth. For instance, if you wish to retire early, the retirement kitty required would be more significant than when you plan to retire at the conventional age of around 60-65. Miscalculating your retirement phase can land you in a sticky situation of running out of your retirement corpus.
- Start saving early to retire early and peacefully
It’s always advised to start saving for your retirement as soon as possible. Remember, the longer your investment duration, the greater the power of compounding. Most youngsters in their 20s who have recently started earning perceive retirement planning completely unnecessary at that time.However, what these people tend to forget that being young provide them witha benefit that is available to all – time. Beginning to invest in mutual funds early can help you accumulate the required corpus without much stress.
- Determine your retirement kitty
Your retirement corpus is the amount required post-retirement to keep up with your daily expenses and continue with the same lifestyle and perhaps even pursue your other personal goals. For this, you need to ascertain your annual expenses at present.Jot down your monthly expenses on various categories such as medical, household, entertainment, EMI, travel, etc.To maintain your current lifestyle, it’s essential to make an accurate estimate of the amount required after retirement. Don’t forget to factor in inflation.
- Cut down on unnecessary expenses
If for some reason, you are unable to save now to invest in your future, try to cut down on avoidable expenses. Some of the avoidable expenses are your impulsive purchases, weekly entertainment, dining out, foreign vacation, luxurious experiences etc. Cutting down on such costs can help you to save and invest more and reach closer to your targeted corpus.
- Plan and create an ideal portfolio
Keeping your investment horizon and risk profile in mind, you should define an asset allocation to each asset class. It is important to diversify your investments across various asset classes.For instance, equities have the potential to offer better inflation-adjusted returns than most fixed income securities. You can also seek the help of a financial advisor who conducts risk profiling and thereby setsthe right asset allocation to achieve your retirement corpus.
Lastly, do not forget to track and monitor your mutual fund investments regularly to make sure you are on target to meet your retirement goals. Any changes in the expenses, income, retirement age, etc. should be incorporated in the retirement plan. Now, that you have understood the importance of retirement planning, start investing in your future right away. Happy investing!