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Sunday, November 18, 2012

Retirement Corpus-few tips to build your retirement corpus

Retirement investment

Most of us fail to save enough for our retirement,envisaging that the financial goal is in distant future and thus tend to focus on short term/mid term goals such as buying property,holidays,child's education,marriages and so on.As the saying goes - Rome was not built in a day,you need to understand that in order to build a size-able corpus for your retirement,you must start early and review your portfolio from time to time.A lot of statistical data is taken from an excellent article that featured in Economic times earlier.
                             Before you start with anything,it is very important to have your goal set.In this case you need to calculate a rough amount that you aspire to have in your kitty when you retire.You need to be honest with yourself : when do you plan to start saving,how much you can save now,can the investment be increased over time once the other financial goals are met,can some of the expenses be brought down and same can be contributed towards retirement funds,are there post retirement sources of income,will there be any liabilities even after retirement.Answering questions such as the ones listed above can aid you in your calculations. Simply put,it is you who has to decide what will be your needs and how do you plan to cater them.
                             As mentioned,building a retirement corpus is a long term goal and your investments will vary from time to time.The earlier you start,the better it is.Just because you cannot save say 20000 a month for your retirement currently does not mean that you should neglect this financial goal altogether.You can start with small contribution towards your retirement corpus but remember to increase it from time to time just as your income grows and other financial goals are met.Lets dwell into some figures now: If you are 35 years old,your monthly expenses are around 50000, and if you want to maintain this level for 15 years after your retirement,you will have to invest about 29000 a month at an annualized return of 10%,considering inflation to grow at 6%.On the other hand,a 45 year old has to invest about 93000 a month to arrive at the same figure.Again if you are 25 years old,you will have to invest only 10000 a month to build the same corpus.Again if you are investing early,you can contribute a major portion of your investment in equity,say 70 %, and the remaining portion can be put in debt.Debt funds can be Employers provident fund(EPF), PPF. If you do not have a risk appetite,you can balance out your investment with a 50-50 share in equity and debt funds.Personally,i would suggest to start with a high % investment in equity and then reduce this over time as you near your retirement.
                           The next step is to ensure that you repay all you debt before you retire.If you have taken a home loan,try and settle the loan before you hang up your boots,even if it means paying a higher EMI.In case of insurance,try and buy these policies early since the older you get the higher is the premium you have to pay.When you retire,chances are that you won't have a regular source of income.So it is necessary to repay all the debt since these will gnaw into your savings.
                         The next step is to monitor your portfolio regularly;by regularly i don't mean every hour/day.Pardon me for my bad sense of humor,but i thought all this financial talk can put off a lot of people,although such bad jokes could already have.Sad jokes apart,start with a high % investment in equity,about 70-75%.Equity funds are the only investment options that comfortably beat inflation.Remember to choose the fund houses carefully.Be proactive in monitoring the performance of the fund and change it if its not performing as per the expectation.SIP investments in well performing Mutual funds is the best option for equity investments for someone not willing to jump into Stock market.About 5-7 years from your retirement,change your portfolio to have higher % investment in debt funds such as bank deposits.Continue to have 20-25 % investments in equity.
                        It is also necessary that one builds a contingency corpus.A medical emergency can be disastrous for someone who has not planned for it.Buy insurance plans early since buying them late requires you to pay very high premiums.Term plans can be very helpful in such situations.Insurance should also be bought for all the earning members and not just one.Also plan to have about 5-7 % of the total retirement corpus as a contingency fund that can be used for paying off medical bills.This investment should be in liquid funds so that it is readily available.
                      Lastly,if you have a house,the safest way for a regular source of income is to reverse mortgage it.Under this scheme,home owners above 60 years of age can convert their self owned home into income without having to sell it.The bank calculate the value of your house,and then issues a loan of about 60-70 % of the value.Parameters such as the life span of the owners also affect the loan amount.This amount can be a good source of income in case you do not have a retirement corpus in place.After you and your spouse die,the house is sold by the bank to recover the loan amount and the balance is given to the heirs.The heirs can also opt to buy the house from the bank.This scheme can be an option for all those who haven't built their retirement corpus and also do not have a regular source of income post retirement.
A systematic approach for building your retirement corpus is all that you need.

Images courtesy Google images.


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  3. Great post! Retirement planning is vitally important for people. I am totally agree with you that "In case of insurance, try and buy these policies early since the older you get the higher is the premium you have to pay." Get suitable retirement plans services from The Platinum 401k, Inc which gives you better tax-efficient yield.


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