It has been a memorable last few days in my life.
Firstly, my family members celebrated my birthday which was truly an emotional event.
I did not realize that they had planned so many things to make it a memorable event.
Time really flies before you start realizing that your near and dear ones are doing something for you which you have been doing for them till last few years.
This was followed by birthday celebrations of my son which was another memorable event.
In fact only a few days, less than a week, separate the two events and I look forward to it every year.
To tell you the truth these are the moments in our lives which give us inspiration and happiness.
And now I go back to my favorite subject of financial planning and securities.
Many of us, in fact most of us. born in 50's to 90's have not been exposed to any such planning as a result of which it becomes difficult for us to survive financially post retirement.
But "It’s never too late ...."
Let us make a beginning even now.
As we approach our retirement, the first and foremost need is to exercise control over household expenditure even though the income from employment continues to flow in. I do not mean to say that you start compromising on your lifestyle but try to do away with unnecessary expenditures which is left to your wisdom. As the number of dependents drop and there may not be any need for newer physical assets like a house and car because you might have already got it, expenses as a percentage of income should ideally drop. The fact of the matter is the in retirement the income literally stops but the spending continues.
If the acquired assets you use in retirement to generate income do not take care of the expenses that your household is used to, an inevitable compromise in the quality of life is bound to follow.
There are generally two types of expenses, mandatory and discretionary. Mandatory expenses are the ones that any household has to incur under any circumstances while the discretionary expenses are the ones purely driven by the lifestyle and leisure preferences. When income increases and more money is available after catering to mandatory expenses, there is a general tendency in the human beings to increase the discretionary expenses. However, when these expenses are habitually incurred, they create a lifestyle creep, or the forced conversion of the discretionary expenses into mandatory ones which one should be careful about. So one must be careful on spending habits. Credit cards usage are always a temptation to many and there is nothing wrong in it but remember you are in reality playing with your future.
Secondly, it is never too late to start saving for retirement. Some express remorse that they did not start early as mandated by retirement planners. They start worrying if it is too late already. What the advocates of early saving miss is the power of quantity. In fact the reality of many households is that large amounts are available to save only as one advances in age, and income.
The percentage of income that a household saves should progressively increase with time. Beginning with a 30% saving rate when you start earning, a household should ideally reach a 50% saving rate by the 50s and with increased incomes in the later years, set aside more towards retirement. If a household took 15 years to build its first million in assets, it will typically find itself able to build the second million in the next 10, and the third and more in the next five.
Thirdly, you must retire debts of all kind before retirement. A typical parent takes loans to provide best possible education to his children by way of sending them to the best schools and colleges. The children will soon graduate and start holding paying jobs that should enable them to repay the loan. The parent should seek a transfer of the loan to the child and relieve themselves of the debt.
Ideally, your retirement corpus should earn enough income to simply replace your salary income when you retire. However, not everyone has saved enough and even if they have, the corpus is not invested such that it can generate adequate income. Loan repayments burden the already fragile corpus and its earnings. It is a good idea to strive towards debt frees 50s as a financial goal.
Fourthly, begin to work towards your next career even as you continue to earn and thrive in the current job. It is not a good idea to begin seeking a job after retirement, when the networks, contacts, and connections have all served from the job you were doing earlier. Find out what you would like to do, and work towards securing it early. I have already discussed in detail on this aspect in my previous blog,
A well thought out plan of what you would do after retirement, and investment of time, money and energy in securing that pursuit, will help tide over the constraint of not having an adequate retirement corpus. Earning for a few years after retirement means is always good as you do not draw on your corpus and thus give it the ability to grow in value.
And lastly, ensure that your assets are aligned to work best for you, post retirement. The textbook prescription is to have 30% in property, 30% in equity and 30% in fixed income. The balance 10% could be in cash and gold. The property is likely to be the one you live in. The equity will secure your retirement, growing in value and protecting you from inflation. The fixed income will deliver the income for your expenses.
It is not impossible even at the age of around 50, to realign assets to the above ratio, provided you haven’t invested too much in real estate, have the determination and will power not to overspend, and are in the mind frame of building assets through aggressive saving and investing habits.
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