Are you ready for retirement?

• Teena Jain Kaushal
• December 27, 2017
• 

Photo: Reuters

Most of us contemplate our retirement with some measure of hope and trepidation. How much hope and how much fear is also a function of how prepared we are financially. Preparing, in turn, means taking stock of what it might cost to fund those sunset years.

How much is enough?

Assuming that your expenses will come down dramatically after retirement is not correct. While some expenses may indeed go down, others like healthcare costs are likely to rise as you grow old, even though you may no longer be repaying loans or putting your children through school or college.

Your travel expenses may also rise significantly as many are keen to travel after retirement. Therefore, you need to be prudent while calculating your post-retirement expenses.

Financial planners say expenses after retirement are usually about 80 per cent of what one spends during the work years.

Getting the numbers right

Life expectancy: Agreed that you cannot predict your life span, but an educated guess of how long your retirement period might be is not a bad idea. Taking into account your present health condition and your family's health history can help arrive at a figure. Remember that life expectancy is on the rise.

Return on investments: If you are investing in the stock market, be realistic while estimating returns.

Often, investment agents and bankers paint a rosy picture of your investments and claim average returns in the range of 20-30 per cent.

For stock market investments, it's safe to assume an average return of 12-14 per cent in the long term. Fixed income interest rates too are subject to fluctuations, given the vagaries of inflation and interest rates.

The key lies in constantly reviewing your portfolio and tweaking it in tune with your retirement corpus goal.

Price rise: Inflation is a demon that keeps nibbling away at your retirement corpus. So, always take into account the impact of inflation on your retirement savings.

To give you an idea, assuming inflation is at 7 per cent, Rs 1 lakh today will be worth just Rs 13,000 after 30 years.

This means things will get costlier and you will be able to provide for fewer things with the same amount of money down the years. You will need to make investment choices in such a way that the returns continue to absorb the inflation shock in your post-retirement years.

Health Insurance a must-buy

You should buy health insurance when you are young and healthy.

This is because insurance companies tend to deny cover as you grow older, particularly if you have a medical condition. Moreover, insurance policies come with a waiting period of up to four years to cover pre-existing diseases.

So, the sooner you buy a policy, the better, as it will help you tackle health emergencies better in the later stages of life.

"A senior citizen health insurance plan is absolutely necessary, especially when one is planning to retire and live on pension or interest earned on savings," says Antony Jacob, CEO, Apollo Munich Health Insurance.

"A health insurance policy can be expensive for senior citizens as old age brings ailments that could be expensive to treat. But this should not discourage retirees from buying a policy."

Planning for Contingencies

Finally, it is always advisable to save up for contingencies, as they come unannounced.

For instance, there are many illnesses that are not covered under health insurance policies. Having a contingency fund saves you the bother of running from pillar to post to arrange for money. For such contingencies, you may invest in liquid funds, which give a return of 6-7 per cent.