Preparing For A Happy, Financially Independent Retirement

From the time you earn your first paycheck in your early (or late) 20s, you may have many different life goals on your list. And the goals you have may be different from your colleague's or your friend's goals.

You may want to first save up for buying your own house. Your colleague may prioritize building an emergency fund instead. And your friend may perhaps be saving up for their dream car.

But across age groups and genders, irrespective of what other goals may be on the list, there's one milestone that's common to everybody. And that is retirement.

Everybody wants to have happy, financially secure retirement years. And everybody has this on their list.

Surely, you do too? If you answered yes to this (of course you did), here are 5 questions you need to answer to help you prepare for your post-retirement life.

When do you Plan to Retire?

The first thing you need to do to prepare for your retirement is to choose the age at which you want to retire. Typically, most people retire at 60. But you may want an early retirement - say 50 years, maybe? Or you may want to work past the age of 60 too. Whatever the case may be, you need to first decide the ballpark age at which you wish to retire. This is the right place to begin because it gives you more clarity on how much time you have to create your retirement fund. In other words, it helps determine your investment horizon. Let's take two scenarios to see how your time horizon influences your retirement financial planning.

Scenario 1:

In this case, you have 4 decades to build your corpus. So, you can afford to take higher risks in the early years, in return for the possibility of higher, inflation-beating returns.

Scenario 2:

In this case, you only have 25 years to meet your retirement needs. This will encourage you to take on a more conservative approach to investing, because you have a shorter time horizon.

How much do you need to Retire?

Next up, you need to know how much money you will need to live a comfortable life after retirement. This includes the funds you need for your everyday expenses, and the costs you will incur to maintain your standard of living.

Typically, your post-retirement requirements may be around 70% to 90% of your pre-retirement needs. This is because you may not have major expenses like your children's school fees or EMIs when you've retired. But you may have higher medical bills instead.

When you are preparing for an independent retirement, you need to account for your financial needs as accurately as possible. For instance, if your children are still dependent on you, you'll need to account for this as well. Or, if you still have unpaid debts, you need to include that too.

Factor in all of these and come with a ballpark figure of how much you'll need to save up. That's the corpus you should aim to build.

What are the Right Investments for you?

Once you know the investment horizon ahead of you and the target corpus you are looking to create, you can choose the right investments for your retirement needs. Today, the Indian financial market has different kinds of investment options that can help you be retirement-ready.

To begin with, there are many government-backed schemes and products that are exclusively created to help you financially prepare for retirement. Let's take a close look at the investments that can be beneficial to you, based on your age, your risk profile and your retirement needs.

Younger people with a higher risk appetite, looking to build a corpus

If you are an aggressive investor still in the prime of your career, looking to build a corpus, you can choose from options like the following:

• Direct equity
• Equity mutual funds
• Real estate or REITs
• Equity Linked Savings Schemes (ELSS)

Younger people with a lower risk appetite, looking to build a corpus

If you are a conservative investor still in the prime of your career, looking to build a corpus, you can choose from options like the following:

• Public Provident Fund
• National Pensions System
• National Savings Certificate
• Debt mutual funds

People looking to replace their income post-retirement

On the other hand, if you are fast-approaching retirement, or are over 60 years of age, and want to establish an alternative source of income, you can consider investment options like:

• Senior Citizens Savings Scheme (SCSS)
• Fixed deposits
• Post Office Monthly Income Scheme
• Dividend stocks or mutual funds

Are you Insured?

Investments are one half of the story. Insurance is the other half. A life insurance plan, in particular, makes for valuable additions to your portfolio. Here is how a life cover can help you remain financially independent during your post-retirement life.

• It helps secure your spouse’s futureA life insurance plan can give your spouse a financial safety net in case something unexpected happens to you. This can be particularly useful if your spouse is financially dependent on you.
• It can supplement or replace your incomeSome life insurance plans like the ABSLI Guaranteed Annuity Plus offer regular pension payouts. You can use this to your advantage, and replace your professional income with these benefits.
• It keeps you prepared for medical emergenciesLife insurance plans also offer add-on riders that you can choose at the time of purchase. Some riders offer financial benefits in case of surgeries, hospitalization or critical illness diagnosis.

Is your Retirement Fund Future Proof?

There's one last thing you need to look at before you are done with your retirement planning. And that is future-proofing your retirement fund. This includes two key things.

• Reducing your portfolio risk You need to diversify your investment portfolio. By investing in only one or two options, you increase the risk of suffering losses or losing your capital over time. You also reduce the possibility of earning higher returns. So, a healthy level of diversification is essential.
• Inflation-proofing your fund It’s also important to account for inflation when you are preparing for your retirement. More often than not, this is overlooked. And a fund that is not inflation-proof may be inadequate for you later in life. That could make it harder to maintain your standard of living.

• Reducing your portfolio risk You need to [diversify your investment portfolio](https://lifeinsurance.adityabirlacapital.com/articles/your-money/build-personal-finance-portfolio/). By investing in only one or two options, you increase the risk of suffering losses or losing your capital over time. You also reduce the possibility of earning higher returns. So, a healthy level of diversification is essential.
• Inflation-proofing your fund It’s also important to account for inflation when you are preparing for your retirement. More often than not, this is overlooked. And a fund that is not inflation-proof may be inadequate for you later in life. That could make it harder to maintain your standard of living.

Summing up

By taking care of these key areas, you can ensure that you're on the right track, heading towards a happy and financially secure retirement phase. The importance of planning is often overlooked. But with the right plan, you can make your post-retirement dreams come true. And if you're having trouble putting together a solid financial plan, you can always seek expert help.

MISTAKES TO AVOID WHILE INVESTING FOR RETIREMENT

Knowing what not to do is just as important as knowing what to do. We have a blog that explains common mistakes to avoid when you're investing for your post-retirement life.

Read it here RETIREMENT IS ONLY ONE OF LIFE'S MANY MAJOR MILESTONES. DID YOU KNOW THERE'S ONE PLAN THAT COVERS THEM ALL? And that is the ABSLI Guaranteed Milestone Plan. With this savings plan, you get a wide range of benefits that help you meet all your non-negotiable life goals easily.

Fully guaranteed benefits on maturity, guaranteed additions to boost your corpus, and the option to cover your spouse under the same policy - this plan offers all these benefits and more!