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The Prudent Approach to Your Retirement Planning

5 MinsMay 13, 2019

“As in all successful ventures, the foundation of a good retirement is planning.” – Earl Nightingale (an eminent author and radio speaker)

You would agree that old age is an inescapable truth of life and among all the financial goals, planning for your retirement is one of the most important ones.

The World Health Organization data reveals that life expectancy over the years has increased with access to healthcare facilities. Moreover, today, a number of individuals wish to retire early, at their age of 50-55, although the usual retirement age is 60.

All of this should leave you thinking:

Will my retirement fund last a lifetime?
Is living a blissful life during the golden years really possible?

Retirement Planning

Retirement or the golden years are the second innings of your life. If you wish to retire rich with financial freedom, you need to plan for your retirement right away! Procrastination will not help you build the intended retirement corpus, and over the years with inflation, the purchasing power of hard-earned money can erode.

Therefore, if you wish to live a blissful retired life, prudent planning is essential. You need to seek answers to questions such as:

  • What could be my normal life expectancy, based on the family’s medical history?
  • When do I want to retire?
  • The time horizon before retirement?
  • What are my current monthly regular expenses?
  • What will be the cost of my expenses in future?
  • What do I own / What are my assets?
  • Can I generate enough cash flows from existing assets for retirement?
  • Do I have adequate health insurance cover?
  • Do I have enough contingency corpus?
  • …and many more!

Based on these, you will be able to determine the optimal retirement corpus required to live a blissful retired life—and for this exercise, do not forget to account for inflation.

Thereafter, to achieve this financial goal, i.e. to build your retirement corpus, you need to invest in wealth-creating investment avenues before you hang up your boots.

Public Provident Fund (PPF) and Employee's Provident Fund (EPF) are, along with, sovereign gold bonds, of course, great retirement saving options providing tax-free returns. But along with these, also consider investing in mutual funds as they are, potentially, one of the best options. Mutual funds, as you may know, enable you to diversify the investment portfolio, which is the basic tenet of investing.

Today, there are solution-oriented funds specifically addressing the goal of retirement. These funds are structured in such a way that they maintain flexibility of investing across equity and debt depending upon the investor’s risk profile and return expectations. Additionally, they also offer tax deductions for investments upto 1.50 Lakhs u/s section 80C of the Income Tax Act, 1961. And the investor also has an option to withdraw systematically (post the mandatory lock-in period) to take care of his regular monthly income (in lieu of ‘pension’ as such). These, alongwith many other attractive features, makes retirement funds worth looking at. .

That said, evaluating the features of the scheme, the performance track record, and the portfolio characteristics, to select the worth ones is important. Furthermore, you need to pay attention to your investment time horizon before you retire, so that liquidity is accessible when you actually need the money.
[Also Read: Select the best Retirement Funds in 5 minutes]

If you have five years or more before retirement, consider investing in a set of diversified equity funds (large-cap, large & mid-cap, mid-cap, value style funds, and aggressive hybrids funds) recognising their risk-return traits. And prefer to SIP into them regularly whereby you compound wealth and mitigate the volatility of the equity market abetted by rupee-cost averaging feature.

If you are just a few years away from retirement, take limited exposure to equity funds, and consider schemes that take exposure to other asset classes such as debt & money market instruments and gold. The objective here is to reduce exposure to high-risk assets viz. equity and allocating money to the ones that are less risky, whereby your portfolio is diversified across types of funds ---equity, debt and gold.

Remember, asset allocation and diversification are the key tenets of investing. To prudently allocate your investible surplus and diversify your portfolio, take into consideration:

  • Your present age
  • Your risk profile
  • Your current financial situation —income, personal and household expenses, assets, liabilities etc.
  • Your investment objectives
  • And the time horizon before your financial goal will realise

Doing the above will help you appropriately choose asset classes and investment avenues in congruence with your overall investment objective and your financial goal/s.

And once you’ve invested your hard-earned money, make sure you are reviewing your asset allocation and schemes in the mutual fund portfolio to ensure you are on track to achieve the retirement corpus and living a blissful retirement.

To sum up…

Retirement Planning can give you the opportunity to spend the second innings of your life the way you want and with the same lifestyle that you enjoy today. So, take control of your personal finances, start planning today for your retirement, and lead a healthy financial life.

Happy Planning & Investing!

Disclaimer: This article has been authored by PersonalFN, Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.