Okay, so you've made it to the last lap of the proverbial rat race. Your retirement is now somewhere between ten and fifteen years away - and here's the good part: your career is probably peaking as well. Numerous studies have shown over the years that business careers tend to peak a decade or so prior to retirement.
While in principle, most of know that retirement planning should start with one's first paycheck; the reality remains that the "pre-retirement" phase of one's life is when one usually starts pulling out the stops and committing more time and money to this goal than ever. After all, was there ever a better motivator than fear?
If you're in this important life stage at this moment, here are a few steps you can take to ensure that you step into your twilight years with chutzpah.
First, at the cost of sounding extreme, I would advise you to commit every spare rupee of surplus at this stage towards your retirement. Whatever you do with your money at this stage, do not utilize your retirement corpus for any other goal. I've seen more than one client drawing heavily upon their retirement funds to finance their kids' educations or marriages - only to lead to disastrous consequences later.
You've still got a decade or more to go, and that's a good time horizon as any for an investment. Avoid the mental trap of suddenly becoming overcautious. Aim to strike a balance between growth and risk control, preferably leaning in the direction of the former. Equity Mutual Funds must still form the core of your investment portfolio.
Second, don't rush to buy an annuity. Annuities are packaged to look great (fixed, risk free income and what not) but in reality, the effective returns work out to a very low number. Now is not the time to become suddenly risk averse.
Third, conduct what I like to call a "pre-retirement reality check". Sit down with a Financial Planner and arrive at what can be a reasonable 'starting post-retirement income' for you, based on your current retirement savings and projected savings for the next ten to fifteen years. For instance - if you're 45 years old today, and look forward to spending the equivalent of Rs. 80,000 in todays' terms throughout your retirement, your corpus target should be Rs. 4.2 Crores (or thereabouts). Ask yourself honestly if this target is achievable (basis realistic estimates of your future earnings, other goals to be met, and current provisioning). If not, reverse the equation and figure out what your post retirement monthly spend can actually be (in today's terms) and make peace with it. The last thing you should do is exposing yourself to Ponzi schemes or speculating in futures and options, with the hope of doubling your money!
In the five years preceding your retirement, you'd want to systematically de-risk yourself by moving from high risk to low risk assets in a staggered manner. If you're heavily into equity mutual funds, for instance, you'd want to use STP's (Systematic Transfer Plans) to stagger then into short term debt, income funds or liquid funds.
Purchasing any new Life Insurance policy will be prohibitively expensive at this stage. The ballpark annual premium for a 1 Crore life cover for a 50-year-old is Rs. 36,000 (Rs. 25,000 per annum higher than the premium for a 30-year-old). Think carefully before buying any new policies at this time - your dependents will likely be getting settled on their own feet by now, and your assets may be sizeable - both these factors negate the need to up your sum assured. When buying Life Insurance at this stage of your life, make sure you critically evaluate the actual need from the standpoint of the risk of an unfortunate eventuality, and nothing else.
In summation; your pre-retirement decisions will have a serious impact on the quality of your life in your non-earning years. Committing every rupee of surplus to your retirement is the best gift you can give not just yourself - but your dependents too. Remember that your independent retirement will allow them to focus on their financial priorities in turn.
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