Retirement is the last stage in the professional career of an individual, and everybody wishes to enjoy a relaxing and comfortable retired life. But in order to do that, you must plan in advance. No age is too soon to start planning and saving for retirement.
You need to look up several saving options that will give you a comfortable financial retirement basket to bank on. Your retirement plans depend on a number of things like your goals, your needs, and so on.
Saving for your retirement is not going to be an easy task with the constantly rising prices. A lot of deliberate and careful planning must go into this.
Check out these 6 simple and helpful guidelines to get started!
1. Determine How Much Time You Have
The difference between your current and retirement age, i.e. the number of years you have before retirement, will decide the strategy that will be effective for you.
If you have a number of years to go, perhaps more than 30, you can go for assets that have a higher risk factor. Stocks would be a good bet in cases like these though they tend to be volatile.
Your assets should be able to easily tide you over inflation and see to it that your purchasing capacity does not go down.
For those who do not have many years before retirement, the allocation should be higher and the risk factor lower. You will not need all your money at the same time.
To provide for multiple needs, your financial portfolio should be divided into multiple parts to give you access to it as and when you need it.
2. Get Rid of Personal Debts
Everybody needs to take out loans at some point or another in their lifetime, be it education loans, home loans, or personal loans.
As long as you are in debt and your loans are not cleared, it is difficult to focus on saving. It is always better to clear off your loans as soon as possible without waiting for the due date.
Any extra money that you make must be used to clear off any debts you have. Here, you must prioritize on the basis of the rates of interest that you are paying.
Clear off those debts first where you are paying maximum interest. Once you are free of all your debts, you can divert your finances towards saving for the future.
3. Calculate Your Retirement Expenses
The answer to the question ‘How much do I need to save?’ depends on the expenditure you expect to incur after your retirement. The assumption that your expenses will decrease after retirement is not true.
In fact, with inflation and the cost of living rising every year, your expenses might remain the same or even increase. You need to thoroughly research Retirement Saving Strategies before you decide on which ones to choose from.
Some people may have a long list of places to visit on their bucket list that they have been unable to visit because of a shortage of time. Others may have planned to invest in a house.
Along with this comes health care, an essential part of old age, which burns a hole in many a pocket if not planned for. You also need to consider the fact that the average life span of human beings has also increased.
If your calculations about your expected expenses go wrong, you could be left high and dry, either looking for a job even after retirement or finding yourself financially dependent on someone.
4. Savings Should be Automated
Many times, people are not able to save because they end up spending more than what they had planned. Before they realize what is happening, the salary is spent and gone.
In these cases, they are unable to set aside the monthly amount they might have decided upon. Fortunately, technology has an answer to this problem.
It is very easy to give standing instructions to your bank to automatically deduct a particular amount and set it aside as monthly installments towards whatever assets you are investing in.
This way, it will not matter how much you spend because your savings are automatically taken care of. Your retirement financial basket will not be affected.
5. Calculate the Returns After Taxes
To know the precise returns of your investment, you need to calculate the taxes payable on the amount you have invested. The amount of taxes on returns depends on the type of investment you have made.
The returns after-tax can either be shown as a ratio or even nominally. The rate of returns needed after taxes must be realistic and feasible.
With increasing age, the returns decrease since you will be investing in portfolios that have a low-risk rate and give securities that are low-yielding and have a fixed income.
6. Appraise Risk Tolerance Against Your Investment Goals
Before you invest, you must decide on the right portfolio where risk aversion is properly balanced against the return objectives that you have in mind. You need to carefully decide your risk tolerance.
You might want to keep aside some amount in treasury bonds that are absolutely risk-free. A mistake many people make is micromanaging their portfolios.
You should be comfortable with the risks involved in your financial portfolio and realize the difference between a necessity and a luxury.
Do not give up on funds and investments just because they have one bad year. Next year might be a very lucrative one. You never know.
A comfortable and luxurious retired life does not begin at 60. It begins long before that. It begins when you start planning for your retirement and set aside savings; the sooner the better for you.
Think of your retirement needs, health care, your bucket list, and of course any other contingencies that might pop up unwarranted.
A lot of careful and wise thought and consideration must go into your savings plan for your retirement otherwise you will find yourself suitable for the famous quote “Penny Wise, Pound Foolish”.