The decisions taken years before your retirement pave way to how your life would be after retirement. It has been seen that sound financial decisions before retirement bring cheer and peace after retirement when the finances are all the more important. Nobody can doubt the shortage of funds after a person has retreated from the job. The money for day to day expenses gets filtered, as post retirement, a person will be getting pension which is way less than the salary he used to receive during work. Indians mindset is changing day by day and now even young employees are trying to mitigate the risks of future. This is a good idea considering the uncertainties and contingencies that can occur in the future.
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Burden in a Recessionary Environment:
The approach of investors before subprime housing and debt crisis in the US and Europe has moved strides away from the approach after the debacle. A future retiree must consider the fact that after recession, the interest rates are pretty low. In a domestic environment, the deposit rates have come down and they are not matching the high inflation levels. In a few countries, the interest rates are close to zero. Lower interest rates make life difficult as the savings need to be increased. A high interest rate means that you could have saved less but had generated returns on your principal. The saving should be more in case of lower interest rates. Therefore, you must save more so that your retirement will not be mourned. The person who retires with lesser savings finds it hard to meet his living expenses. You should plan your retirement particularly in a lower interest rate and higher inflation scenario.
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Provident Fund:
Although there is a fixed percentage set that gets deducted from your salary every month, you should look to increase the percentage of money deducted from your account. This is between employer and employee. It will ensure that at the time of retirement, you will have more funds in your Provident Fund account. These savings become a habit once you start following them and you get used to them. In other cases, you will be spending the money not saved, for other expenses; you will have the PF fund but even that will be lesser. If you want the retirement corpus to look more handsome, then ask your employer to deduct more in PF. That will be the employee?s contribution. Employers have no liability to contribute more, they will only contribute in your PF funds as per normal set limit.??
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Plan extra income after retirement:
At the time of retirement, few people are fit to continue with the job. In such cases, the employee can apply for part time jobs. In case of private companies, this option is possible in some cases. A retired employee can work part time in the same company or he / she can work in a different organization. You must be aware that experience has a high value. The employer?s stance has changed over the years and they want seasoned personnel. Part time job gets you extra income apart from the pension.
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Risk Averse:
You should be risk averse well before retirement. The decisions you took at the time of starting your career are not the decisions you should continue at the time of retirement. A new employee with lower liabilities is more a risk taker. Your priorities should change as your liabilities increase. Make fixed income investments and try and put your hand in Mutual Funds that are more safe rather than investing in Equities. Avoid punters call on specific companies and try and make an investment in good schemes and areas like PPF, NSC and Fixed income bonds. Investment in properties is a risky venture which you should avoid. But, don?t be too conservative, you can look into this area provided you have done due diligence.
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Retire at a Later Date:
Unless you got attracted towards lump sum at the time of Voluntary Retirement Scheme (VRS), it is advised that you take retirement at the official date if your health allows you to do so. Having said that VRS schemes are launched by company to company basis and there is a possibility that you don?t have such scheme in your bag. Whatever the case may be, it is better that you retire on the date that is officially set to; this will give you time to save more before retirement. You may also have a chance of higher pension and pay scale revision under the Indian Pay Commission. Whether you are a government employee or not, the chances of annual pay hikes or appraisals are always higher.???
About the Author:
Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at?expert@investmentyogi.com
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Calculators:
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Retirement Corpus Calculator
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Monthly Pension Calculator
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Source: http://www.investmentyogi.com/investing/retire-with-free-mind-take-action-before-hand.aspx
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