As cliche as it may sound, we all know it is inevitable we’ll reach that stage in life when we’ll be dependent on those relations, resources that we’ve struggle hard to preserve, accumulate over years. This article seeks to guide a reader through building a fund to reassure him/her in their golden years.
1. Monthly necessities being provided by you today (groceries, electricity, water, DTH, maintenance charges) will inevitably fall short of your affordability checklist as you retire in about 25-30 years. With no recurrent, incremental income to rely on during that time, important to know how much you’ll need by then. Measure your current period expenses. Compound it forward to 30 years to estimate your yearly expenses after adjusting for time-value & inflation deterioration effects.
2. Before the unrelenting bug called “inflation” finally catches up & eats into your principal savings, inculcate a sense of fiscal and saving discipline in your own way starting today. Just simple, sensible frugal habits is all you need to provide for your future necessities.
3. Let’s suppose you’ve imbibed that discipline, estimate your current period savings in monetary and percentage terms. Also estimate your major needs in between and up-till the time of your retirement. That’ll fill up the ‘whats’ & ‘hows’ of reaching there.
4. Settling on asset allocation mix. This is an elaborate stage with multiple elements and processes – person’s unique circumstances, stated constraints, behavioral biases, volatility sensitivity, defining broad asset classes, sub-categories, tax efficient structures, optimal allocation at different phases, rebalancing rules and strategies. Each element in this stage is critical in developing an actionable financial plan, a comprehensive routemap to create a bell-weather retirement fund.
5. Finally you’ve reached retirement age with a retirement balance across asset classes to serve your geriatric (old-age) needs. You take a fresh look at your routine, medical needs. Also assess if you are able to harvest, enjoy the fruits of your savings, investing discipline of more than 2 decades in an automated mode without getting anxious without having to run from pillar-to-post.
If somehow you’ve not incorporated above mentioned elements in your planning, it is time to change your approach. Don’t hesitate to seek a professional opinion to help build an optimal retirement corpus suited to your life stage, age, circumstances and financial position.