How to Start Retirement Planning After Making Your First Pay

Retirement is a dreaded word. The thought of spending more hours thinking about how to make two ends meet is scary indeed. The image of homeless persons adds to the fear.

But retirement need not be so terrifying. Here are a few simple steps that have been followed by those who are not homeless.

Some may have read these retirement planning tips, whereas others may have logically concluded them, and planned for them in their own way. There is enough flexibility in such suggestions.

1. Start retirement planning the day you take your first pay

It is difficult to deny yourself that small bonus after struggling for an entire week or month. But that indulgence can be extremely addictive. You would think I am not earning enough.

You couldn’t be more wrong. You can always draw up your budget and cash flows. Now use an excel sheet and prepare cash flows for each year from present to almost 80 years, using the columns for each such year.

Now, compound your requirements at inflation rate and populate each of those cells in the columns. You would get a clear idea about how much you would need for your existence.

But that would not be the only thing you need to plan for. You might need to add a car to your requirement, and marriage expenses, apart from expenses for purchasing a home and spending on children.

You sure have to plan a lot before that first pay. Even if you can spare merely a dollar, it will help because this dollar will be compounded over the years just like the list of expenses in your cash flows.

2. Enjoy only what remains after providing for retirement

This is where most people go wrong. They tend to enjoy first, and spare only what remains for retirement savings. They can’t be more wrong.

3. Divide savings between risky investments and secure investments

There are always some expenses that do not increase much with age, such as insurance costs, and perhaps costs of telecommunication. Therefore, you need to have a percentage set for your savings.

Here is a simple suggestion, which you can choose to vary as per your savings and needs.

• Between 20 and 30 – Invest 50% of your savings in risky investments and the rest in safe investments
• Between 31 and 40 – Invest 40% of your savings in risky investments and the rest in safer investments such as government bonds which have long term maturity. Ideally utilize all retirement saving options that save you taxes.
• Between 41 and 50 – Invest 30% of your savings in risky investments and the rest in safer investments that save you taxes. Opt to pay taxes when you retire because then basic exemption level would be higher.
• Between 51 and 60 – Invest 20% of your savings in risky investments and the rest in safer investments that have long term maturity.
• Between 61 and 70 – Invest 10% of your savings in risky investments and the rest in regular income fetching security. By this time some of the earlier savings would have reached maturity level.

4. You also need to plan your life stages

Retirement planning includes life stage planning. Therefore, you need to plan when you will marry, when you will buy a home, when you will have children, and when you will buy a car.

You may have to settle for a smaller home in the initial stages, and a car that does not qualify as your dream car. But such sacrifices will well be worth it at retirement.

Do not forget to take medical insurances and do not forget to have a contingency plan in your monthly budget.

Once you acquire a car and / or home, car insurance, home insurance, road taxes and property taxes come into picture. Those expenses should not be forgotten.

5. Consult a financial adviser periodically

Unless you are a qualified finance professional, you would be better off consulting a financial adviser who will look at your goals and how you are progressing towards it.

If you are denying yourself too much, the financial adviser would tell you so, and if you need to save some more, maybe you need to do a little bit of moonlighting. It is always better to get a professional’s view so that you do not go wrong with your retirement planning.

Conclusion:

Inflation cannot be wished away. It can only be managed.

When monthly income stagnates but inflation merrily continues on its course, concerns are natural.

But income on retirement can be periodically increased too. It is not the financial wizards alone who manage to do that. In fact, there are more people who have homes than those who do not. This fact alone should convince you that you can do it too.

Please share this article as it can help people start planning their retirement at the earliest and include whatever needs to be included in their retirement plan. It will also give a rough idea about how they should go about investing the surplus funds available with them at any point of time.

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