Sunday, April 23, 2017

Thinking about but not yet planning for retirement?

When I was in my 30's and 30's I never thought about retirement, except when people I knew and respected retired. As I remember I was a little jealous of the opportunities I saw for them in this phase of their life. Many of us don’t start planning for retirement until we reach our late 40’s (if we are smart or lucky). Most of us actually start in their early to mid 50's and we panic. as we realise that we should have started planning when we were younger. So if you are still in your 20s and 30s hopefully you may learn from this post. Here are a few suggestions to plan for your retirement years:
Create a balance sheet
All that you have saved for your retirement will go into the asset side whereas the money you will need to live a comfortable post-retirement life and any unpaid liabilities such as loans, expenses on children's higher education and marriage etc. will go on the liabilities side. 
While creating this balance sheet, keep the following in mind:
You may go horribly wrong in calculating your life expectancy on basis of the age of your grandparents or parents. Be prepared to live even longer as life expectancy is on the rise worldwide.
You may ignore inflation at your own peril. The value of money reduces to half in 12 years if the rate of inflation is 6 percent. Apply the rule of 72 as you think about inflation.
Don't totally depend on physical assets. Past global examples indicate that real estate and gold can lose its value dramatically in a short period of time. It was the meltdown in real estate prices that triggered the global financial turmoil in 2008, remember?
The quality of healthcare is improving which will add many more years to everyone's life. However, health care will come at a significantly higher cost than in the past. While filling the liability side, don't ignore the cost of healthcare.
Prepare a viable plan
Once you have your balance sheet ready, most of us may find their balance sheet in red with post-retirement liabilities exceeding their assets or assets not being sufficient to support long post-retirement years. Is dependence on children in those retired years the only solution? Certainly, not! Here are a few options:
  • Pay yourself first. Create a retirement fund. Discuss with a professional financial adviser to understand the gap in your retirement planning. Start putting money aside to fill that gap immediately.
  • Create a separate financial plan for each life-stage goal and promise yourself not to dip into your retirement fund for those needs that may arise earlier than your retirement. Make sure you review your retirement plan at least twice a year.
  • If after all the planning you still find a shortfall, plan how you can extend your earning years.
  • Buy a health plan and critical illness plan soon to fund your healthcare needs in future, as you and your spouse grow old.
It is time to give retirement planning a serious consideration. While you might be curious about "how will I look when I am retired?", an equally important question to ask is "how will I feel when I am retired?" 
Creating a retirement plan and taking the first few steps toward it will go a long way in ensuring a "happy feeling" when you are retired.

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