Whether you are salaried person, employed by a Government or private entity, a professional, a business person or anyone who have indulged in active pursuit of goals, take care not to fall in to the trap of adventure seeking.
a) Do not take an about turn in your career. If you had been an office goer for the last three decades, it would be necessary for the right combination of luck and hard work to become a successful farmer after you retire.
b) Do not take any aggressive stance on your investment portfolio for reasons such as starting late or mid-way losses. Economic environment may not favour your thoughts and you will not have any time left to recover from the losses.
c) Do not get in to the itch of ‘one last time before I retire’ syndrome, especially in relation to risky options in the areas of investments or adventurous activities.
d) Do not under-estimate your life expectancy. Disciplined way of living clubbed with improvement in health sciences would increase your longevity.
e) Do not give away your wealth and assets to your heirs sooner than necessary.
f) Do not ignore taxes and inflation
g) Do not ignore health insurance. You need it most when you retire if you have not created a separate health care management fund.
h) Do not ignore your exercise or yoga routine. Prevention is better than cure.
i) Do not forget to remember that when you retire you do not work for others. You never retire from what you do for yourself and your love ones.
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It used to be the common refrain in the last decade that people wanted to retire early. How early? ‘May be after 45 years’ used to be the common answer. Somehow, such thinking has diminished in the new decade. Reasons could be many. Stagnation of salaries could be one of the reasons for loss of bullishness to retire early. Economic environment could also be a dampner. Whether you wish to retire early or at the legal superannuation age, you need to know and define your transition phase.
So what is transition phase and how long it should be? Transition phase is defined usually as the time period before the actual change happens and the next phase begins, from active regular employment to part time employment or transition to profession or business or complete cessation of activities related to job, such activities constitute the transition phase. The length of transition phase would depend on your approach to retirement planning. It could be just one day as in most of the cases or it could be long drawn.
What is the importance of transition phase and what actually happens in the transition phase?
Transition phase is important in the following ways:
a) You will soak in the reality that your life would alter, may be even drastically, when you retire.
b) You will start developing your hobby or passion in to useful economic activity that can sustain you emotionally and/or financially during your retirement.
c) You will cut down on your activities related to your profession or business, create backup plan and set in motion activities to handover your jobs and responsibilities to your heir-apparent.
d) You will start counting the beans and re-align your investment goals. You will also start establishing passive sources of income.
e) If you are relocating to another place or city or country you will begin the process of acclimatisation.
A financial planner would use the transition phase to re-jig the portfolio which is currently oriented towards growth to a portfolio oriented towards safety and income generation. Usually the financial planner would use a 3-year period to perform transition activities.
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Your retirement planning time horizon can be divided in to four major stages or phases:
a) Accumulation and Growth Phase
b) Transition Phase
c) Consumption phase
d) Transmission or ‘giving away’ phase
One fundamental question you will face is when to start ‘investing’ for your retirement. Logical answer is soon after you receive your first ‘income’ or ‘salary’. Provident fund contribution is a statutory contribution mechanism for organised work force. From your very first salary, you and your employer would start contributing in to this account. For the present, it is a tax free accumulation and growth enabling system. What about unorganised sector of employment? If you belong to this category, or otherwise also, you can open ‘Public Provident Fund’ Account and begin your contribution. This also is a tax free account to help you in the first phase retirement planning. Those of you who wish to take exposure to equities in your primary retirement account, you can look at NPS. Importantaly, before opening the account, make it a point to understand clearly how the account works and its limitations.
When you should start contributing additional amount for retirement planning? Well, the answer again is immediate, generally. There would be certain situation in your life and career when you will be unable to do this. If you want to pursue higher education or if you are a business person or a professional starting your own practice, you will be cash strapped and would be unable to commit additional resources. Work with your financial planner to chalk out an action plan to fund your retirement account optimally.