START EARLY, RETIRE RICH

START EARLY, RETIRE RICH
Those of us who still have many years to go before retiring tend to think of retirement in terms of fuzzy clichés like tending to the roses, long walks by the sea, playing golf on weekdays, pottering around the house and so on. But those staring retirement in the face invariably think of grimmer things like steep medical costs, shriveling income stream, taxes, inflation and the rising cost of living, and of whether their savings can meet all these expenses. When it comes to planning retirement, the bottom line is this: you either are in saving mode or you are in spending mode.The pre-retirement phase of life includes many financial responsibilities and goals such as building a house or providing for children’s education, besides planning your own retirement. Yet, many of us remember retirement just a few years ahead of the ‘R-day’. Arriving at how much retirement savings you should have is a tough one, but one can fairly estimate one’s needs depending on the lifestyle one maintains in retirement. It will help to prepare a budget which lists what you spend on necessities so that you know how much your monthly or annual expenditure will be in the future. Account for inflation keeping a rough estimate of 7-8 per cent inflation every year. Also, consider expenses that are bound to increase, such as medical and transport expenses. Then again, calculate the expenses that may cease to exist, such as your children’s education or repayment on a home loan.The accumulation phase, where you can save and invest for your golden years can start anytime from the day you start earning and while there are many ways that one can save; life insurance is a component that plays an important role. It is a protection tool that safeguards the interest of your financial dependents in case you die; it also helps you build a cosy retirement egg which you can utilise in your own retirement. Of course, if you start at a late age you will have to increase your savings substantially and even cut down on any superfluous expenses. Starting early will help you benefit through the power of compounding, that is, you have more time for your money to grow.The advantage with life insurance is that it instills regular savings habit which is systematic with regular payments towards premiums and offers tax benefits on savings as well as withdrawal on maturity. There is also professional money management that insurance products offer, which is far better than handling it ourselves. As you approach retirement, you need to assess how long your savings can last in retirement and lead your retired life. With increasing life expectancy we are facing a situation where our years in retirement can be as long as or more than our working years depending on when one retires.Reality is that once retirement is reached, the saving period is over. The balancing act at this point is between the desire to enjoy retirement and the fear of running out of money prematurely. The way the retirement life insurance plans are structured; you get a tax free lump sum to withdraw from your accumulated savings with the balance paid as a monthly annuity acting as a regular income stream. But there are ways to supplement this income stream; one can consider working beyond retirement which could be part time or in the immediate future make illiquid assets pay better.Research indicates majority of Indians owning a house much before they retire, the reverse mortgage facility makes the house that one owns pay a regular income stream for a fixed number of years or trough the life of the house owner. One can tactfully opt for an insurance policy in retirement which will swap the value of the house on the reverse mortgage option on the insured’s death, with the house ownership being bequeathed to the insured’s family. This way not only can one earn income from one’s house; one can also pass the house to the next generation. At the end of the day, retirement is a journey and what matters is that you get to your destination with a clear road map and make sure you enjoy the journey.