Retirement 5 Years Away? Here Are 5 Essential Questions To Ask Yourself
If you're five years or so from the date that you finally plan to hang up your work boots and relinquish your steady income, you're in a tricky phase of your life - financial planning-wise. Perhaps you're coasting towards a comfortable retirement, or maybe some urgent rear-guard action is called for. Here are five critical questions that you should be asking yourself right now, to help you figure things out.
How much do I already have?
Chances are, you've already got a substantial amount of money saved up for your retirement. Over the decades, your PF contributions, your random savings in fixed deposits, and even low yielding life insurance plans that you unwittingly bought, would all contribute to the bottom line. This is the most important time for you to take stock of your present situation, so that you can take course-corrective measures, if required. Add all your financial assets up into a simple excel sheet - your Mutual Funds, ULIP's, endowment plans, NPS investments, PF, deposits and draw up a sum total. Be sure to leave out indivisible or relatively illiquid assets such as real estate of private equity investments, if any.
What's my savings withdrawal rate likely to be like?
This is a really tricky question, and one with no easy answer. However, it's absolutely vital to arrive at a ballpark 'savings withdrawal rate' that you're likely to incur post your retirement. Take into account all your fixed monthly spends, remove EMI's and other discretionary spends that you're likely not to incur once you retire (say, a car loan that's running), and inflate it at 5% annualised from their current values. That's your first year monthly spend. Throw in travel expenses each year and other annual lump sum costs such as your medical insurance premiums (which will be frightfully expensive after you retire), as well as annual medical costs you're likely to incur that won't be chargeable to your Mediclaim. Also, factor in the amount you'd like to increase your withdrawal rate by every year, or every five years - as that would make a huge difference to the required size of your retirement fund.
Will I generate post retirement income from sources other than my savings?
If you're retiring from the armed forces, you're likely to receive a healthy pension post your retirement. Similarly, you may possess rental properties or annuity plans that will cover some portion of your post retirement spends. If you're like most people, you'll decide to continue working after your retirement in some way. Some take up teaching, others consulting, while some even start businesses with their grown-up children, and so on. For reasons more than just financial, it's important to start planning how you intend to fill your time post your retirement years! Either way, it's critical to have a clear idea of how much income you're likely to generate from sources other than savings.
The obvious one - how much more do I need to save?
The answers from the first three questions, if approached with care and precision, will help you frame the answer to the most important and obvious question right now, that is - how much more dough do you need to pull together to help you sail through your post-retirement years. Needless to say, this is a very critical number, and one that you need to be absolutely committed to above all else. Even if achieving this number will entail reducing spends elsewhere and cutting corners, make sure you do it.
How much do I need to save for the next five years, and where?
Fortunately, 5 years is a long enough time frame for you to invest your money aggressively enough to generate inflation beating returns while taking on a moderately high degree of risk. Even an additional 50 Lakhs is achievable if you're willing to save around Rs. 60,000 per month in equity mutual fund SIP's. Since you won't have to consume the entire saved amount at once, you have the luxury of extending your time horizon by a further 3-5 years in case markets are unsupportive at the time that you retire. Don't make the fatal error of saving cautiously at this time - you need to get maximum bang for your buck, and equity SIP's are the best way to go about it.
