Retirement Planning Guide

Life is about the journey...

From beginning to end, life is full of milestones—graduating college, getting your first job, starting a family, buying your first home—but perhaps one of the most challenging is a comfortable retirement. More than a matter of luck, it takes careful planning and implementation throughout your adulthood to achieve this goal.

…so is your retirement.
No matter where you are in life, there are always things you can do to prepare to be financially independent and able to work, or not work, on your own terms. These include:
  • Determining how much you Need to Save, and doing so
  • Choosing Savings Vehicles
  • Selecting the Mix of investments
  • Protecting against Uncertainties
and most importantly, why we need do retirement planning?
  • To deal with uncertainties
  • Shift in social structure from Joint Family to Nuclear Family.
  • Healthcare Expenses rising faster
  • Inflation Increasing daily expenses
  • To meet your Retirement Goals
  • No Govt. sponsored Pension System
  • Falling  Interest Rates

Hence, it is absolutely essential to have a strong Retirement Plan that will give you awareness on where you stand today, and what steps you need to take to achieve this goal.
Since everyone’s retirement is unique, so is the path to getting there. Depending on where you are in life, there are certain things you’ll want to focus on that may help make the path a little smoother.

This guide is a resource to help you understand what things to consider at various stages throughout your career.

More than 25 years until retirement

Whether you’ve just landed your first job, joined a new company, or have re-entered the workforce after some time off, now is the right time to start saving for retirement. The challenge, however, is that things like living on your own for the first time, adjusting to a new career and income, building an emergency fund, and getting rid of pesky credit card and student loan debt may get in the way of saving for the long-term goal of a satisfying retirement. Finding a way to tackle short-term goals and start saving for retirement at the same time takes some planning and discipline.

Early-career retirement planning milestones
At this stage, it is vitally important to establish a strong financial foundation. Consider these suggestions:

Create a spending
plan

Track your expenses, ans use this information to create a plan for spending money. Your plan should account for monthly and non-monthly expenses.

Build an emergency fund

Deposit funds automatically into a savings account until you have at least 3-6 months of expenses saved.

Pay off
debt

Prioritize paying off high-interest debt (generally debt with interest rates greater than 9% first)

Save for
retirement

Contribute as much as you can afford to a workplace retirement plan, NPS or Mutual fund retirement plan.

Invest for the
long haul

Take advantage of your time horizon by investing more of your savings in long-term instruments (eg., stocks, bonds, real estate.)

Starting early makes a BIG difference!
Starting Age Corpus Expected
25 yrs 5.45cr
30 yrs 3.05cr
35 yrs 1.68cr
40 yrs 0.91cr
** Saving Rs 10,000 per month, earning 12% annually till the age 60.

Mid Career

10 – 25 years until retirement

Once you have started to save, your income will likely increase, but now you find yourself with competing priorities. Things like buying a home, saving for your kids’ college education, and caring for loved ones will enter the picture and affect your budget and savings. With all this going on, it might feel easier to hit the pause button on saving for your retirement, or maybe cut back on how much you have been saving. You can borrow money for a lot of expenses in life, but retirement isn’t one of them. Keep saving for your retirement a top priority.

Mid-career retirement planning milestones
At this stage, it is vitally important to establish a strong financial foundation. Consider these suggestions

Run a retirement
project

Use a retirement estimator to determine whether you are on track to reach your retirement goal.

Estimate your life
expectancy

You don’t want to outlive your savings, so use a resource to see how long you are estimated to live.

Adjust your investment strategy

Review your investment strategy, adjusting for changes in time horizon and tolerance for volatility, not past performance.

Making risk with insurance protection

Protect income in the event of injury, illness, or death, with adequate life and is liability insurance coverage.

Lack of social security
  • India’s pension system is already ranked 28 out of the 30 countries.
  • Only 7.4% of the working age population in India is covered under a pension program
Approaching Retirement

Less than 10 years until retirement

You’ve come to the point where retirement is just over the horizon. Start evaluating your various income sources, including part-time work, pension or other benefits and income from assets such as retirement plans, equity, bonds and real estate. It’s also a good time to start estimating retirement expenses. You may have paid off your mortgages and other debt, but these expenses may be replaced by healthcare, travel, and other lifestyle expenses. Now more than ever you’ll want to have your budget in place, along with a clear understanding of retirement benefits, Medicare, and a plan for protecting and distributing retirement assets.

Late Career retirement planning milestones:
Manage and protect the nest egg you have worked hard to build. Consider these steps:

Evaluate income
sources

Pensions and annuities provide guaranteed lifetime income, while retirement accounts (e.g., NPS, Retirement Mutual fund), equity, real estate, and other assets provide income that may fluctuate in value, but might provide a hedge against inflation

Create a distribution
strategy

Compare retirement income to expenses to determine how much you can afford to spend without depleting your nest egg too quickly

Decide when to take retirement benefits

Prepare plan how much and when you need funds regularly postretirement. It can be monthly, Quarterly or Annually.

Preserve your
estate

Protect assets with long term care and liability insurance, and make sure assets transfer efficiently to loved ones through proper estate planning.

  • By 2050, 19% of Indians will be above 60 years of age, according to the UN Population Division, but only 25% of that population currently has some form of pension cover.
  • 60% Do not have any retirement plan. Yet 63% feel that they will have sufficient money during their retired years
Post Career Retirement Planning

Post Retirement

You have put your plan into action and it’s time to reap the benefits of your nest egg. Life is forever changing, so be sure not to put your retirement decisions on auto-pilot. Review your financial plan each year to make sure your nest egg will last. Account for any changes to tax laws, healthcare costs, and other influencers that might impact your savings. Evaluate how your investments have performed and whether you need to make any adjustments to your spending plan. Be sure that you are withdrawing your funds as tax efficiently as possible.

Post Career retirement planning milestones
Here are some ideas to keep it simple:

Adjust your plan as needed

You may have to retire sooner than expected, or decide that you’re not quite ready. Be flexible, adjusting your lifestyle to changes in health, family, and cash flow.

Re-evaluate Medicare

The Medical coverage options you initially chose are not permanent. You can change them to other options that may be less expensive or a better fit for your changing needs.

Structure your leisure time

As the saying goes, if we rest, we rust. Decide how, where, and with whom you want to spend your time. Develop new passions. Take a class, volunteer, dust off an old hobby, or start a new one.

Leave a legacy

Do legacy planning, and prepare an ethical will or legacy letter that lets loved ones know how you wish to be remembered.

Time Managment

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Overview

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Where you will invest your money?

When choosing where you will invest your money, it is important to think about the time window you have until retirement. If you have more than 20 years until retirement, it is essential that your portfolio have the ability to grow significantly in that time. For that reason, you should be willing to take on some risk of periodic fluctuations in exchange for the long-term growth of your money. If you have a shorter time horizon, say 5 years until retirement, you need to have a greater level of security in your investments to make sure you don’t get caught in a major downswing in your investments just as you are about to retire. Most people do a mix of stocks, bonds, cash equivalents and other choices to give themselves diversity and exposure to growth opportunities.

  • Stocks  (Equity)
  • Bonds ( Debt)
  • Cash and Cash Equivalent
Mutual Funds

If you’re like most people and want to protect your retirement money by diversifying your investments, a mutual fund could be a solid choice for your needs. Since mutual funds are designed to spread your money among different types of investments, you automatically get exposure to varying types of products. This variety can be within an asset class or across assets classes.
For example, you can choose a stock mutual fund that will invest in different types of companies, such as energy, technology, pharmaceutical, mining, etc. Or you can choose a mutual fund that divides your monthly investment among stocks, bonds, cash equivalents and other asset classes. The money you put into a mutual fund, which is pooled with other investors, is managed by a professional as a single investment product. You can request a prospectus to see how a particular mutual fund has performed in the past.

Know how much you need post retirement