The word retirement might make you feel old, but many youngsters are planning years for a happy and luxurious life, post-retirement. The golden rule of planning retirement is to start early. The sooner you begin, the higher your tolerance for risks.
By keeping in mind the following five steps, you can plan for a perfect retirement and make your dreams come true.
Make a List of Expenses:
- Before you start investing, you should know how much income you will need to cater to the monthly or yearly expenses post-retirement. Note them down in the order of priority to see which are most important for you.
- Apart from monthly expenses, you will also need to make a note of other annual or semi-annual expenditures such as holiday expenses, wedding or education expenses, investment in your hobbies, etc.
Consider the Timeline of Events :
- What is your current age? By when do you want to stop working and take retirement? Your retirement plans should fit the time you are aiming for. The investments should start bearing results by the year you choose to retire.
- At the same time, you have to consider inflation and market fluctuations. The income you receive today may not be enough for you down the years.
Don’t Forget to Take Tax into Account :
- Always minus the amount, you will have to pay as tax when calculating your investment and returns. Not all investments are tax-free, while some of them give very good returns.
- Start working in reverse. Arrive at the tentative amount you will need after your retirement (including inflation) and work backward by subtracting tax amounts and other expenses. This will tell you how much you will need to invest today.
Have a Contingency Fund in Place :
- No matter how much you plan, the future is not in your hands. Though you cannot plan for everything, you can set some funds aside for emergency purposes.
- Health can be one of the major causes of concern as you grow old. Having a steady amount of contingency funds will help you in tough times and keep your other investments safe.
- The aim is not to let your retirement investment take a burden of unexpected expenses and leave in with insufficient income during your old age.
Investment Goals, Insurance, and Estate Planning :
- A diverse investment portfolio can provide a lot of benefits in the long term. Use a retirement planning calculator to arrive at the final amount and start looking at the various options for investment in debt, equity, gold, and other markets.
- Insurance is one way to safeguard your loved ones and enjoy the benefits after the policy ends. Real estate is another good investment that will provide you with a place to live and something to pass on to the next generation.
Remember that the retirement investment options for a 30-year-old and a 60-year-old are going to be different. Take to a financial advisor for more information.