4 STEPS TOWARDS A SAFE, SECURE, AND FUN RETIREMENT

Retirement planning is a multi-step process that evolves time to time. To ensure a comfortable, secure, and fun-filled retirement, you need to build the financial cushion that will fund all the important stages of your use-to retirement life.

Retirement planning starts with thinking about your retirement goals and the time you have to meet them. Then you need to consider the types of retirement accounts that can help you raise the corpus to fund your future.

Last but not the least is taxes. If you’ve received tax benefits over the years for the money you’ve contributed towards your retirement savings, a significant tax bill awaits you as you start withdrawing those savings.

Let’s start by learning the four steps that you should take, no matter what is your age, to build a full-proof retirement plan.

#1 DEFINE YOUR TIME HORIZON

Your current age and expected retirement age are the two elements that create the initial foundation of an effective retirement strategy. The longer the time you have for the retirement, the lower the level of risk. The keyword here is “long-term” meaning at least over 10 years.

You should break up your retirement plan into optimal allocation strategy i.e. multiple components. Let’s say a parent wants to retire in three years, pay for a child’s higher education when he or she turns 18, and invest for his or her seed capital.

#2 DETERMINE THE COST OF USE-TO LIFESTYLE FOR RETIREMENT

Having realistic expectations about post-retirement cost of use-to lifestyle will help you define the required size of a retirement investment portfolio. Most people believe that after retirement, their annual spending will amount to only 70% to 80% of what they spent at young age. But that’s unrealistic.

Also, while planning your retirement, don’t forget to consider your longevity, so you don’t outlast your savings.

#3 CALCULATE AFTER-TAX RATE OF YOUR INVESTMENT RETURNS

Once you have defined the expected time horizons and your spending requirements, it is important to calculate the after-tax real rate of return on your investment.

#4 ASSESS YOUR PORTFOLIO’S RISK TOLERANCE VS. INVESTMENT GOALS

It’s important to properly allocate the funds to balance risk aversion and return objectives. This is something that should be seriously thought and talked about.

KEY TAKEAWAYS

• Include time horizons, estimating expenses, calculating required after-tax returns, and assessing risk tolerance in your retirement planning
• Start planning for your retirement at a young age to take advantage of the magic of compounding.
• Retirement investment plans evolve through the years, and hence your investment portfolio should be rebalanced and updated as and when needed.

Deepak Dhabalia
  Wealth Coach