Mr. Rishab Chaudhary’s retirement is 6 years ahead. He has always maintain a long term investing approach and so have accumulated corpus for his retirement. But lately he has realized that he may fall short of his requirement. The money he is going to receive from his employment will be utilized for meeting his son’s requirement. He never estimated that when he will be on the verge of retirement he will have to support his son financially. More than this his pension income from his employment will be utilized to pay towards a housing loan which he has bought along with his son. These financial situations he has never assumed and so now has to juggle up with his finances to ensure he can have a comfortable retirement years.
Situations like these are not rare but common. Parents shoulder responsibilities of their children not only in their earning years but also post retirement. But what makes things difficult is when these are not estimated before and much like Rishab, parents have to work hard on their finances. Although each of us aspire to retire with pride and without any liabilities, the going may not be in this manner. Hence, a periodic review of your retirement plan is essential. One of the other primary reason is that post retirement your capacity to take risk and many other factors see a change.
Here is what you should do when you are few years away from your retirement:
1. Think About Your Life Post Retirement
Most of us have some dreams or aspirations which we want to fulfill post our retirement. It may be working for a charity or writing a book or going for international vacations. But many a times we are not financially sound and these aspirations take a back seat. What life we will live after our retirement will decide how much money we will need to fulfill our objectives. If you haven’t thought about it then this it may be a right time to start planning for your life post retirement. Where you will live, will you continue working, what cause you will work for and many such others factors you need to decide before you leap into your retirement years.
A bigger benefit for planning at this stage will be that it gives you time to make changes in your retirement plan if you are missing out on any of your aspirations.
2. Review your Requirement
As illustrated before there may be changes in your financial situation. Your cash flows would have changed due to increase in your life style expenses .You might still be running few liabilities which was not on the cards. All such financial changes will change your post retirement needs. When you are 5-6 years away its ideal then to review your retirement needs so that you are well aware what you will need. If there are any changes you will have to alter your strategies accordingly to reach your targeted goal. The strategies may involve altering your investments, cut down in your lifestyle expenses or any such other which may be required to ensure your retirement years do not become painful.
3. Maximize Your Contributions
When you are few years away from retirement you are generally relieved from your other commitments. The only goal which you may have at this stage is your retirement. You are also at the peak of your career earning high which means your contribution towards EPF will also be high. This will be a time when in absence of other commitments you can actually save more for your retirement. Hence, you should maximize your retirement contributions. Additionally, you can go for VPF or enhance your other savings to accumulate more for your retirement.
4. Review Your Asset Allocation
Your risk taking ability will change as you move closer to your retirement. No more you will feel comfortable in taking high exposure towards growth assets. Also your regular income requirement will demand investing more money for a fixed income. As such you may have to change your asset allocation. If your exposure is higher towards growth assets you will have to start moving some of it to fixed income options. It may be a good idea to redo your risk profiling so that you can judge your conformability factor when you are in your retirement. But this does not means moving all your money to so called safe investments. Growth assets like Equities are still required to cover the longevity risk i.e. your requirement if you live longer. Hence some of the money should remain allocated to this asset class.
Retirement is always an important part of your life as you aspire to live longer. But life has all the power to throw you surprises. My uncle lived for 112 and my aunt lived for 92. This may be rare today but things may change with growth in medication facilities and importance given to healthy life. If your retirement remain unplanned and changes are not accommodated you will face difficulties in managing your financial affairs in later years of life. Thus, review your retirement plan periodically and alter your strategies to accommodate the changes which might have occurred in your life or expected to take place.
Have you planned your retired life ? What changes you are making to reach your target goal?
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