How can you plan for your retirement

There are many things you must do before your retirement. But there are few essential things that you must do before you Retire

Do not put off today what you cannot afford to do tomorrow. In India, you have to create your pension and the government has a minimal role to play in securing your retirement. Here are a few tips on things to do before you retire so that your retired life is more comfortable and enjoyable.

Payoff all your loans 

If you are taking a housing loan, personal loan, car loan or any other loan make sure that you repay them on or before your retirement. You need to choose the term of the loan in accordance with your retirement age. You can truly enjoy your retired life when you have 100 percent financial freedom, not when you have to repay your loans.

Protect your emergency fund

Emergency expenses can happen any time. But the possibility goes up as we grow older. So we need to enhance the emergency reserve year on year, based on the inflation and change in your expense levels. Also, you need to invest back in your emergency fund in case you have withdrawn out of the emergency fund to meet any other expense.

Establish a retirement budget

You need to visualize your retired life well in advance and need to create a budget for your retirement. E.g. You will not be going to an office so expenses on transport and clothes may come down. Also, you will have more time to spend. You may need to spend more on leisure travel and health care.

Examine your cash flow

Assess your cash flow situation and consider any income that will continue post your retirement such rent, interest income, etc. Will there be any unwanted outflow during your retired life? Like paying life insurance, or SIP. You must also realign your existing policy and other investments in sync with your retirement age.

Grow your retirement corpus

Most of the people start to plan for their retirement when they are close to their retirement age. Often its too late to have a structured approach to creating appropriate fund before you retire. Here is a tool that can help you understand how much you need to lead a comfortable life before you retire. A professional financial planner can help you determine the right asset allocation to achieve the required corpus.

Develop a withdrawal strategy

This is one of the toughest aspects any retiree has to deal with. When someone retires bulk of payout is made through an employer. In case you have not created a plan for withdrawal you can either commit your funds to wrong investment channels or park in an extremely safe option that does not cover your retirement life. One simple rule is to spread your retirement savings across various vehicles and then strategize with withdrawal strategy to ensure continuity, stability and tax-efficiency. 

Minimize taxes

Careful selection of investment vehicle can reduce your tax during the retired life. Investing in PF and PPF can help to grow your investments on a tax-efficient basis. However, the growth is limited to these investments. Therefore, you need to add growth assets such as equity and real estate. Until recently, equity investment was tax-free but now with the re-introduction of LTCG, you have to pay 10% on long-term capital gains. However, even considering LTCG, investing in equity is important for your portfolio to beat inflation. 

Get sufficient mediclaim coverage

The moment you retire, your employer will stop covering you under the group mediclaim. So you need to plan for your individual medical cover well in advance. At old age, the medical expenses are inevitable and will only increase. If you have not planned it properly then all your retirement plans can go haywire.

Consider inflation adjusted pension plans

The monthly income you need when you retire is not going to be the same even after 5 years of your retirement. Inflation will increase your retirement expenses year after year. Therefore, your retirement portfolio should grow more than the inflation. 

Oversee estate planning

How your fixed assets and financial assets need to be distributed to your legal heirs? Create a Will. You can avoid creating relationship problems to your next generation because of your left out wealth.

Unless you are aware of what and how much you need for your retirement goals, your current investments will probably not be enough.