In the last article, we stressed the importance of having a retirement plan (link to the importance of having a retirement plan blog) and the various investment options available.
Today, let’s elaborate on the retirement planning process by understanding the components of a comprehensive retirement plan and discussing how they contribute to building a solid foundation for your retirement years.
A lot of people, while planning for retirement, think that having a plan and saving for retirement is just what they need. But, the retirement planning process starts with the intention of planning for retirement and goes a long way.
To plan your retirement, savings is just not enough! Investing in the best options that not just grow your investments but also beat the rising inflation while balancing the risk is an essential part of your plan to meet your retirement goals.
Here are all the key components that you must consider in your comprehensive retirement plan, especially while investing your savings:
Retirement Goals and Lifestyle Expectations:
The first step in creating a comprehensive retirement plan is defining your Retirement goals and lifestyle expectations. You can consider factors such as healthcare expenses, travel plans, etc.
You can do so by accounting for what you spend monthly, infact yearly because expenses might differ significantly from month to month. Having clarity on your goals helps you determine the savings amount and investments required to meet them.
Working with a financial planner (link to book an appointment) can help you set realistic goals and create a plan to build a sufficient retirement corpus.
Graphic Image related to: Happy oldies
Once done with estimating your monthly retirement expenses, it is crucial to ensure that you have enough funds to sustain your lifestyle. Your lifestyle expenses could include insurance, daily living, healthcare, property taxes, leisure activities, emergencies, and housing.
Projecting and estimating these expenses will help you to determine the corpus needed to meet your retirement goals.
According to World data, During the observation period from 1960 to 2021, the average inflation rate was 7.5% per year. You can take this percentage to start and adjust later based on different categories of expenses.
The core of any financial plan, including a retirement plan, is building a robust savings portfolio. It includes employer-sponsored retirement accounts such as EPF and NPS and personal investments like mutual funds, fixed deposits, bonds, and stocks.
You can diversify your investments based on your risk tolerance and time horizon. Consider contributing regularly to your retirement savings to take advantage of compounding over time.
Pro Tip: investing in EPF, NPS, and equity-based mutual funds can help you optimize taxes and save your hard-earned money.
Note: Mutual funds are subject to market risks. Read all scheme-related documents before investing.
Asset Allocation and Risk Management:
Asset allocation is an investment strategy in which your savings are invested in different asset classes, such as equities, bonds, and cash, according to your risk tolerance. A well-diversified portfolio helps manage risk and optimize returns.
Determine your risk tolerance based on age, financial goals, and investment horizon. Review and rebalance your portfolio periodically to maintain the desired asset allocation.
Don’t have confidence whether your saved money will last during your retirement?
We at Confiance Capital can help you ensure that your portfolio/ retirement corpus is solid enough to withstand and outperform your retirement goals by strategically navigating your investments in various investment options while reducing your tax burden.
Healthcare and Insurance:
Medical emergencies can significantly impact your finances if you are not adequately insured. Hence, considering the rising healthcare costs and the need for adequate medical insurance as part of your retirement plan is also vital.
Choosing a health insurance plan that doesn’t just cover critical illnesses but also hospitalization expenses. In addition, ensure that you invest in long-term care insurance that safeguards your savings against potential long-term care costs in later years.
Don’t know which health insurance will serve all your needs? Book a free one-on-one call (link to schedule a call) with our experts to help you with it.
Example: Mrs. Patel, a 45-year-old professional, has estimated her retirement expenses to be Rs. 1.5 lakhs per month after adjusting for inflation. To achieve this, she plans to contribute Rs. 20,000 per month to her EPF, invest Rs. 10,000 per month in mutual funds, and allocate Rs. 5,000 per month to a fixed deposit. With this asset allocation, Mrs. Patel aims to build a retirement corpus that sustains her desired lifestyle.
A comprehensive retirement plan comprises various components that build a solid foundation for your post-retirement years. By defining your retirement goals, estimating expenses, building a robust savings portfolio, managing risk, securing healthcare, and buying personalized insurance, you can create a plan that aligns with your aspirations.
The upcoming article in the series stresses the importance and sources of other retirement incomes to ensure a steady cash flow during retirement.
Have any questions? Feel free to contact us (link to contact us page). We will be happy to help you with it.