So, you have decided to call it a day from an active work life. You plan to relax and spend more time pursuing your hobbies, maybe.
Well, a lot of people these days, are increasingly calling retirement an age of ‘financial independence’. The reason is simple — you have amassed enough cash to make sure that it will last you a lifetime. Now, let’s see how we should kickstart this major phase in your life.
1. A status check on all your money
Make a chart/list to show that cash flows accurately. Don’t forget to add your liquid assets. This provides information and control on your funds for the next few years.
2. Consolidation of bank and accounts
Do you have many bank accounts across the country? Close the ones that you do not need and operate a maximum of two bank accounts at any given point. Preferably go for banks that have a sound technology platform for ease of transaction. The same applies for demat accounts and other Fixed Deposit accounts.
3. Status check on medical cover
Take stock of your medical insurance cover. Get yourself adequately insured.
4. Status check on emergency funds
Put aside Rs 2-3 lakhs in an FD or fixed maturity plans, if you do not have any insurance cover. You will need to keep lesser money in such instruments if you have adequate medical cover.
5. Prepare your will
A professional can help you consolidate the important things on paper. But If you wish to do it yourself — put everything on a piece of paper and specify who should get what. This applies if everything you own is self-acquired. If you have inherited asset(s) and if you have siblings, it would be wise to consult a professional.
Litigation and disputes normally happen when either there is no will or if it does not specify things clearly. If you have more complicated assets and stakes in companies then you might need estate planning solutions.
Further more, note that a will can be an “open” document subject to people reading it if they can prove that they have a vested interest. But if you wish to secretly pass things onto beneficiaries then there are other complex yet legal routes to execute it.
6. Income support planning
Here you need to find out how much you plan to spend on living, general expenses, holidays, etc. Thus, you will have an estimate of how much income you will actually need and also if your corpus will be able to support it. If you still have a few years before retirement then you need an estimate of what your starting corpus should be.
There are two ways to estimate your corpus.
a. The best way: get this done professionally. Be sure to ask for a projected networth position for each year till your expected life span, or say, till you turn 85. You should be able to see clearly how your networth will keep changing year-after-year based on fair and realistic assumptions.
b. You could also do it yourself. If you are unable to do the retirement Math properly then you will have to follow the approximation method.
An example for the approximation method:
Let’s say you need to be able to have an income support of Rs 3 lakh per annum. Find out the rate of return that you will be able to earn post tax. If you are able to find an instrument that pays you say, 9% per annum then the post tax return works out to 9% multiplied by 70% (assuming 30% tax).
Hence the post tax return works out to 6.3%. Now divide Rs 3 lakh by 6.3%. The answer you get is Rs 44.78 lakh and that is what you need.
7. Don’t forget Inflation
It’s not over until you factor in inflation, which will force you to need more money each year. Hence simply multiply the corpus by say, two to three times to be on the safer side. Thus you will need about Rs 90 lakh to Rs 135 lakh. This is a very crude approximation for those who want to do this themselves.
Everyone does not have a lot of money, hence checking with a professional may bring some much needed insight for you. Once this is in order, you are pretty much set for your journey into the golden years of your life.