How to retire richer

You need to plan in advance if you want to retire on your own terms. All you have to do is to take stock of the issues listed below to achieve financial freedom after retirement.

1. How long do you expect to live?
Thanks to advances in medicine, longevity is increasing in India. This is the starting point for your retirement plan. While one may never be able to predict exactly how long s/he may live, a good starting point is to have a fair idea of life expectancy by reviewing your own and your family’s health history. India’s life expectancy at birth is 65.48 years.

2. Will you run out of money?
Your savings should not run out while you are alive. You need to calculate the corpus amount required for retirement based on when you want to retire, how much you need to spend every month after retiring, inflation, tax, investment returns and the like. There are two things that can make you run out of money in between: One is inflation and the other is medical expenses when you grow old. Healthcare inflation is currently at around 18-20% every year. So you need to be very careful in factoring in inflation when planning for retirement. Also you need to be sufficiently covered with adequate health insurance.

3. Retirement corpus
You need to divide your retirement corpus into two parts. One part of the corpus would be required to retire at the normal age – 58-60. The other part is the corpus should be set apart if you want to retire early. In other words, should you want to retire at 50, what would be the corpus required to live between the age of 50 and the regular retirement age of 58 or 60. First you need to accumulate money for your regular retirement. You then need to proceed to accumulate funds for early retirement. This way you break your targets and it gives you psychological comfort to know that even if you are forced to retire early, e.g. health reasons or family circumstance, there is no reason to worry since you have factored in early retirement in your financial plan.

4. Don’t fall for get-rich-quick schemes
Sure, you need a sizable corpus for a comfortable retired life. But do not fall prey to get-rich-quick schemes because higher returns go hand in hand with higher risk that you cannot manage as you near retirement. Protection of capital is the name of the retirement game.

5. Don’t fear the market
Your portfolio should contain different asset classes. By investing in a diversified equity portfolio you take a calculated, not blind risk. Equities beat all other asset classes in the long run, so investing in retirement specific ULIPs is an important option for those who want to retire early. The other advantage of saving for retirement through life insurance policies is that it provides protection and takes care of your spouse’s retirement event in your absence. Additionally, these plans which allow indexation, address the consumer concern of inflation on retirement corpus.

6. Evaluate your annual cash requirements
The monthly income required after retirement will be an important criteria for deciding the retirement corpus. If you are comfortable with spending less, you need to be careful in drawing a budget for cash requirement post retirement.

7. Find what will give you safe systematic and self completing returns
Planning for retirement is a long term need. Look for avenues that will give you the best value in terms of safety, security, and returns on your portfolio without increasing risk. At the same time, protection needs should not be overlooked. Look for instruments which are self completing and will suffice for the goal that you set out planning for even in your absence.

8. Cut your current spending to save more
Money not spent is money saved. Spend less, save more, invest smarter and retire richer. There are a number of ways to spend smarter to save more.

9. Earn more now
Time is money. Don’t waste your time; instead invest it in revenue generating activities. Apart from your regular income, there are other opportunities that you can exploit to earn the extra buck. There will be numerous opportunities based on your knowledge and skills.

10. Take advantage of tax-deferred opportunities
Tax deferment is an important tool for early retirement. Tax deferment means paying less tax now. If you pay less tax, you have more money to save. You need to pay tax on FDs on maturity even if you renew them. In life insurance 1/3rd of your maturity corpus is tax free and the balance could be invested in Annuities, which are taxable.

11. Find out some ways to have an income after retirement
Even after retirement you can have an income by way of a hobby or interest. You need not work on a regular schedule. You can be a trainer, a blogger, a consultant, or an advisor in your chosen field to generate additional income and also keep yourself engaged after retirement. If you are able to generate this kind of income, you can retire early. To retire early you need to have a sound financial plan. Professional assistance from a financial planner is always useful if you desire to retire sooner and retire richer.

The author is a Director & Head of Products and Persistency at Max Life Insurance.

V Viswanand
Max Life Insurance
Source: Money Control