There are a lot of activities that form a part of the retirement planning process. It is essential that some of the practical tips and guidelines be followed so that a person is able to get the best out of the situation. Here is a practical checklist that one should follow and one should remember in the process of retirement planning because it will prove to be a great help in tackling the various issues that crop up.
- Inflation will reduce the value of money. So, several years down the line, more money will be required to buy something than what is required today.
- With an increasing life span, people are likely to spend more time in retirement. This could mean 20 to 25 years of a retired life. One must plan for this kind of eventuality and make the financial decisions, accordingly.
- Any avenue adopted for retirement planning has to be followed in a disciplined manner. It is also important that one should not draw down or withdraw an amount from the sum meant for retirement purpose.
- Retirement investments should generate a regular return, be liquid in case of emergencies, be able to beat inflation and ensure a net real rate of return.
- One can never by too old or too young to plan for retirement so the time to start retirement planning is now.
- The earlier you start the retirement planning process, the better.
- Small amounts put aside regularly for a long period of time can provide good results. Hence, it is not necessary to have large amounts of income to undertake retirement planning.
- The amount needed at the time of retirement can be calculated either by using the income replacement method or the expense replacement method.
- Under the income replacement method, a certain percentage of the income just before retirement has to be generated.
- Under the expense replacement method, you need to generate an amount that will be able to meet the various expenses that will be present at the time of retirement.
- Long term targets and goals can be achieved by using equities as an investment vehicle while short term targets are better achieved using various forms of debt.
- A certain sum of money must be kept aside as contingency reserve to use in case of emergency.
- A certain part of income must be available for future wealth creation. Not everything must be used for paying off the existing loans and other liabilities.
- The composition of the process will change over the life of an individual as one passes through different life stages
- One can start with an aggressive investment style in the twenties and thirties. This needs to be modified in tune with the changes that occur in life as one grows older. There has to be the necessary shift in the investment patterns too.
- Debt should be used as a stabilising factor in the portfolio that will effectively supplement other areas.
- Real estate and gold should be utilised for specific reasons at appropriate times.
