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Neeraj Chauhan is a Certified Financial Planner and CEO of The Financial Mall. The Financial Mall is a financial supermarket & in operation for over 20 years. It manages total financial affairs of clients through wealth management and financial planning Process.

Tuesday, March 20, 2012

Tired of being Retired ???

Proper financial planning is important no matter what your age, but it is even more critical when you retire. When you still work, you have many more options at your disposal, including working additional years and putting more money aside for retirement. However, when you leave your job for good, your options are much more limited. That means that it is essential to take care of the money you have saved all those years and make sure it lasts as long as you do

The budgeting process is very different for a retiree than it is for a working person. Some of your expenses are likely to go down when you retire, most notably your work wardrobe, the cost of commuting and the money you put aside for retirement. Other expenses are likely to increase, especially health care expenditures. It is essential to include these potential expenses in your post-retirement budget.
Well, the main financial hurdles are first, your income is going be less, and secondly, your pattern of spending is going to be completely different. You won't be going to work every day. You will have other things to do. You might want to think about having off holidays. You are going to have to find the money maybe, for a new car, or a replacement car. How do you cope if you had a sudden expense on the house, you know, the roof needs repairing or the fence has blown down. So there will be all those things to deal with, and the things that you just have to spend. There will be your electricity bills, your property tax. Things that are very, very hard to avoid, and those will take a bigger proportion of your income. So, again controlling those is going to be an important part of planning for retirement.

One of the biggest differences between pre- and post-retirement financial planning is the ability to recover from mistakes and rebuild your nest egg. Recovering from a bad investment or an unwise tax move is much easier when you are still working, since your ability to generate additional income is much greater. Once you retire, it can be difficult to generate the type of income you could bring in during the peak of your career. That means you must be much more careful about your money, moving the funds into lower risk categories such as bonds and CDs instead of riskier investments such as stocks may also not help.

Make a cash flow statement

How much you will spend in retirement is a function of your standard of living and how long you expect to live! If your parents (or grandparents) have been living to the age of 90 years, chances are you will hit a century!
Make a realistic estimate of help that you may need for day to day living – say nursing, assisted living, old age home, inflation, un-insured medical expenses, medical insurance expenses – these are what we can call the ‘non-negotiable’ expenses. Then there are expenses like travel, fun, eating out, entertainment, – called the ‘discretionary’ expenses. These expenses will happen if the body listens to the mind!

Monitor expenses

It is critical to control discretionary expenses such as those on travel and entertainment. A common mistake many newly retired people make is of spending their savings corpus on a house or on other fixed expenses. Consequently, there is inadequate money to meet variable expenses like medical bills. Try to live off interest, dividends and capital gains, keeping capital untouched for as long as possible.

Health Care arrangement
The persons should plan for health insurance at least about 4 to 5 years in advance of the retirement so that the premium will be comparatively less and the medical expenses of serious problems are taken care of. One has to take into account of the fact of longevity of life as compared to the earlier periods. So the health care arrangement should be planned with long term perspective. The cost of medical treatment has become prohibitive and health care arrangement should not be forgotten. In many institutions during the service period the employer company will have arrangement with some insurer for health care of all employees. If this facility is there during service the same can be extended after the retirement with the same insurance company. 

Protect Your Emergency fund


Emergency expenses can happen any time. But the possibility goes up during the old age. So we need to enhance the emergency reserve year on year based on the inflation and change in your expense levels. Emergency fund will give you a sense of security and also you need not touch your other investments during emergency where you need to pay pre-closure penalty. Also don’t forget to refill the emergency fund once you met an expense out of emergency fund.

Get Rid of All Your Debts

If you have taken a housing loan, personal loan, car loan or any other loan make sure that you will be repaying them on or before your retirement. You can enjoy your retired life when you have 100% financial freedom, not when you have to repay your loans.

Tap tax-free funds

Use your tax-free retirement funds first like Employees’ Provident Fund (EPF), superannuation schemes and gratuity payments to meet regular expenses and reinvest the rest. Another attractive source of tax-free retirement funds is the PPF and the lump sum payouts of pension plans.

Ensure tax efficiency

How you manage the taxes on your retirement investments can make a huge difference to how long your retirement money lasts. One of the most common problems of retired people is the huge payouts made in the early retirement years due to bunching up of retirement incomes. Therefore, it is essential to spread your retirement income over your retirement years.

Re-evaluate your risk appetite

Don’t re-invest your retirement money in low-risk options like fixed deposits. Long retired lives entail growth investments. Keep a certain portion, around 10% of your savings, in equities and equity funds in order to beat inflation.

Post retirement engagement
Some people may take voluntary retirement and join some private company or start some self employment or some other business or agency business etc so that some extra income is available. In order to avoid the psychological effect the retirees have to mentally engage themselves. The best way is to pursue your interest and engage in that hobby.
All have some inner urge in certain specific field like social service, religious activities, tour or travel programs, attending music programs or visiting relatives or it may be any other thing depending on the individual. Some might have taken some course in some hobby like electronic, homeopathy, accounting, horticulture, floriculture etc. These occupations may involve additional expenses but it should not deter as the benefit will be higher than the savings. But this post retirement engagement should not be neglected as engaging the mind in one's interested field will keep the mind busy and will take care of the psychological and emotional and to a great extent the health. Thus the persons will be happy and the happy person/s will be considered as useful to the society instead of being a drag. 

Oversee estate planning


How your fixed assets and financial assets need to be distributed to your legal heirs? Create a WILL. You can avoid creating relationship problems to your next generation because your left out wealth