A Practical Guide to Retirement Planning.

FOR IMMEDIATE RELEASE
Gurgaon, Haryana, India, Republic of (Free-Press-Release.com) January 13, 2011 -- Retirement Planning is often perceived as a complex and distant exercise. Paralyzed by the effort involved, many choose to give it a complete pass. Short term wants and needs often trump long-term considerations. This is a big mistake. Some planning is better than none and a few rules of thumb can go a long way in effective planning. The issues in retirement planning are accounting for the time value of money, dealing with the bewildering number of investment options and overcoming inertia.

Also, most forms of retirement planning are clinical and focused around financial estimates rather than personal, aspirations and expectations.
I believe that the following simple, practical steps are a good way to start planning:

1. Decide your retirement age and plan backwards. A common understanding is that 60-70% of your preretirement income is what you’ll need when you retire, to support your current lifestyle.

2. Enter into forced monthly savings. The surest path to a secure retirement is regular saving. There is substantial evidence to demonstrate that left to our own devices most of us would spend all the money we earn each month. Purchasing a financial product that forces savings is the most effective way to build a corpus. Such products include the systematic investment plans introduced by mutual funds, regular premium life insurance policies, and recurring deposits offered by banks. Keep in mind that the earlier you start saving or investing, the more time there is for the power of compounding to take effect. As you progress in your career and earn more money, try to step up your savings effort as well.

3. Set an absolute savings target for each month. Setting the target requires individual analyses. However, I would suggest that 20% of your monthly salary is a good place to start. This is in line with the country’s average savings. In general the more one earns the higher the savings. So for people in the highest tax bracket, I would expect atleast 40% of monthly income to be saved. Annual bonuses, when applicable, should also be completely saved and invested.

4. Live within your means. In particular, do not take on unnecessary debt that you will find hard to sustain. A quick way to estimate if the debt is reasonable is to ask yourself that if you were not working for a year, would you be able to sustainably pay the EMIs.

5. Decide on your asset allocation carefully. Keep your investment goals, time horizon and risk tolerance in mind when you allocate your resources in various savings instruments. If you are looking at the long term, avoid keeping a large proportion of your money in savings, current accounts or non-income generating instruments. This money needs to be made to work much harder by investing more efficiently.

6. Reduce your exposure to equity with age. It is difficult to predict market volatility so my advice would be to conserve your savings when you are nearing retirement. A rough rule is to maintain 15 percent or less of equity if you are over the age of 50, 30 to 40 percent when in the 40s and over 50 per cent in your 30s.

7. Avoid investments that promise excessive high returns. In today’s day, offering double digit guaranteed returns is not possible. Beware of such schemes. Even an indicative double digit rate should be carefully scrutinized and the risks understood. I see too many people lose their hard earned money in such investments.

8. Avoid churn of financial instruments. There is a cost involved each time you sell a particular financial product and, most often, the cost does not support the anticipated extra returns. When you make an investment have at least a 5 to 10 year outlook.

9. Seek professional advice. Identify and work with an advisor who you can trust to make the right investment decisions on your behalf. The person should be capable of assessing your specific retirement needs and suggesting personalized and effective solutions.

10. Make health a priority. There is no better way to plan for your retirement than to take care of your health when you are young. Keep fit, eat healthy and buy health insurance early. There are several health insurance schemes available today. Purchase plans that have guaranteed premium rates even as you grow older.

11. Think through the lifestyle that you would like to maintain after retirement. In my experience it is very important to develop varied interests, keep contributing or working in areas that interest you as long as possible. This keeps the mind active and allows you to fully enjoy your retirement years.

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