"A journey of a thousand miles begins with a single step!"

Same is the case with retirement planning! Retirement planning is not an art but a definitive science. It is like a big web of financial plans that connects everything to each other in some way, and therefore requires you to take a holistic approach, considering every relevant factor.

The whole purpose of retirement planning is to help you maintain the desired lifestyle during your old age, keep you financially prepared for key life stage events, and assure you and your dependents financial security.

According to a recent study, a major part of the working population in India- age 45 years and above, would prefer retiring in the next five years, but not many would be able to. This can be attributed to multiple reasons like:

  • Not saving enough
  • Not starting a retirement plan early
  • Not calculating how much they will need in the longer run
  • Not making provision for inflation
  • Not increasing the savings amount periodically
  • Underestimating the cost of health care and long-term care
  • Not diversifying or rebalancing the portfolio

The key takeaway here is that even if the process of planning your retirement comes across as daunting, do plan for it, if you wish to retire with surplus cash in hand.


Here's a guide to put you in the right direction:

Step 1: Calculate the amount required to maintain your basic needs and goals

Make note of every possible expense (fixed basic monthly expenses, child’s education or marriage spends, home renovation expenses, etc.), and those you might incur to fulfill dreams like a world tour, buying a new retirement house, etc.

The total cost of all these expenses along with a consideration of 2-5% inflation year-over-year on the present prices, is the amount you will need to accumulate when you retire.


Step 2: Determine the age at which you wish to retire

Growing life expectancies (due to improved healthcare) are making it essential that retirement planning be done to last for at least three decades. Here's what you can do –

1. Understand the total amount that would be required to take care of your expenses for at least three decades, and retire when the amount is arranged.

2. Determine the retirement amount. Determine the age you wish to retire. Spread the amount throughout the period. And retire when you are done!


Step 3: Understand your current financial situation

To plan the next course of action, an overall financial tracking is what you will need. You can do this by monitoring every penny that comes in or goes out of your pocket. This must include everything from your sources of income, investments, liabilities, expenses, etc.

Not only will this step help you to plan your retirement well, but will also help you understand if there is any unnecessary wastage happening.


Step 4: Asses the amount of risk you can take

In general, investments with potential for high returns are more risky. If you have more time to save, you could consider opting for higher risk. If not, high-risk investments could prove fatal, since there is less time to recover from any potential loss. You will need to decide how comfortable you are with the trade-off. You must consider the following: the level of financial risk you can afford to take, the level of risk required to produce a return to achieve your goals, and the level of tolerance you can afford on an emotional level.


Step 5: Allocate your investment assets

Investments should ideally be done using the strategic investment allocation process, which is a popular investment strategy that involves diversification of the assets. So instead of investing in one asset, you should spread out your investments in different portfolios. The main objective of asset allocation is to maximize the return and minimize the risk, based on your – goals, retirement age, risk tolerance, current financial situation, investment climate and all other relevant factors.

Your investment options can include - Savings Account, Tax Saving FD, Senior Citizen FD, Recurring Deposit, NPS, Sovereign Gold Bond Scheme, and Retirement plan – insurance.


Step 6: Periodic Monitoring and Rebalancing of your assets

Ups and downs in the market are inevitable, but one can still control the outcome by using the rebalancing strategy. The primary goal of a rebalancing strategy is again to minimize the risks and maximize the returns. It involves periodic buying and selling of assets in a portfolio to maintain the desired balance. This is done after thorough and regular monitoring of investments, risk tolerance, cash flow volatility, and market conditions.

It is never too soon or late to start planning. If you wish to retire wealthy and peacefully, you need to have a solid plan in place.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.