Understanding The Special Needs Of Retirement
“As in all successful ventures, the foundation of a good retirement is planning.” – Earl Nightingale
Retirement is the happy phase which brings in an opportunity for us to do what we always wanted to do – take great holidays, spend time with the family or pursue our passions which we could not due to time constraints. That is the real happy part. In this phase, we are vulnerable and have worries such as –
“Will my money outlast me?”
“Now that I don’t have a regular source of income, how do I maintain my current lifestyle?”
“Where do I put my money now? There are so many options available!”
“Whom do I trust for advice?”
“How do I ensure my money is protected?”
“How do I meet my ever-increasing medical expenses?”
While everyone will advise you what to do, it is important to understand what you should NOT DO.
- Don’t let your money sit idle
- Don’t let emotions make you part with your money
- Ignore the noise – Don’t listen to casual advise
- Don’t invest without understanding the fine print
Your hard-earned savings will not grow once you retire if it is kept in a Bank FD or by simply not doing anything with your money. Additionally, most don’t factor inflation which reduces your purchasing power and cuts into your wealth.
How often have we heard stories of close relatives and friends asking for monetary help and not repaying it? Do not be swayed by emotions and part with your retirement corpus as this might be your only savings to sustain you for the next 30 years.
Bankers, insurance agents and others, knowing you have a large retirement corpus, tend to sell you products you do not need. They sell ULIPs or Pension Plans even at this stage of life stating that it is similar to investing in FDs with an added benefit of free insurance. However, these products don’t protect you from inflation and have long lock-in periods affecting your liquidity.
While you may be tempted to look for higher returns and capital appreciation, investing without understanding the product or the risk associated with it can be harmful. For example, investing in Corporate FDs which offer high returns can make your capital unsafe. While investing, it is important to remember that high returns are related to high risk.
The key to a stress-free retired life is understanding the financial needs at different stages and planning for them. The requirements and expenses change in each phase of life. Let’s take a look at the various expenses in the different phases of life, below –
| Age | How Expenses Change Through Retirement |
|---|---|
| 60-70 | While your travel and lifestyle expenses are high, your medical expenses are relatively low. |
| 71-75 | Your travelling and lifestyle expenses might reduce to some extent but your medical expenses increase. |
| 75+ | Your lifestyle expenses reduce but you may see a marked increase in medical expenses. |
With increase in expenses and the average life-span, it is important to plan your finances so that your money lasts you a lifetime. It is important to consult a financial advisor who will help you plan for these phases. You must consult a financial advisor who understands your needs and will help you plan your finances keeping in mind these needs. The advisor should then help you invest your money so as to meet your requirements and safeguard your hard-earned money.
Team HF
Happyness Factory is a Goal Based Planning platform. We aim to spread financial literacy and help people make sound financial decisions.
28 May, 2018