1. How Will I Spend My Time In Retirement?

Among other things, how you will spend your time in retirement will have a significant bearing on retirement expenses and the amount you draw from retirement savings. This, in turn, will determine the retirement savings you need. Let us illustrate this with two scenarios.

On retirement, you could try to extend your career in the same organisation or industry. You could also start a new passion or career. This will help you get income, and you do not need to dip into retirement savings. However, if you want to put up your feet and be involved in hobbies like gardening and painting to fill up your erstwhile work hours, you incur costs. They will be over and above other costs like those related to leisure activities like travel.

2. Where Will I Live?

Typically, people like to retire to places with family members, health, and security infrastructure. Housing facilities appropriate during work life may be inappropriate in retirement. At the same time, home buying and relocation late in work life may dent overall savings.

If you do not plan to actively work or seek work after your organisation’s mandatory retirement age, you may consider relocating to a town with lower living costs. This will help stretch your retirement savings for a longer period. Crucially, take the decision on retirement housing as soon as you can so that you may recover from the large expenses during the remaining work life.

3. How Much Money Will I Need In Retirement?

To arrive at the figure of adequate retirement savings, take the help of a financial advisor. they will help you determine whether the savings would be adequate for the length of retired life you envisage, while accounting for rising living costs due to inflation.

In case you intend to leave behind financial inheritance for loved ones like children, you will need to have higher retirement savings figure. To determine the retirement savings right for you and taking corrective measures, seek advice from qualified investment advisors.

4. When Should I Retire?

Organisations typically have mandatory retirement age like 58 or 60 years. The self-employed, gig workers besides entrepreneurs, can time their retirement according to their wishes. Of course, employees can try and extend their work life or start a new career post-retirement.

A person can be termed as financially planned for retirement when the monthly paycheque or other regular income can be replaced by income from investments throughout retired life. Among the income sources are capital gains from equity mutual funds, debt mutual funds, besides dividends, interest, annuities from life insurance companies and rental income from property. A planned retirement requires adequate regular income to rule out compromises in quality of life. On detecting a likely retirement savings shortfall, one may consider extending work life.

5. How Will I Manage Healthcare Costs?

Various studies in India over time have indicated that 60-80% of healthcare expenses* are borne by people from their own pockets, with financial protection from health insurance being inadequate. Health ailments, typically lifestyle diseases like diabetes and heart ailments, start getting detected from mid-40s, if not earlier, with expenses for their treatment typically increasing over time.

According to some studies, a retired person is likely to spend 1.5 times* more on health compared to a person in work life. Moreover, 26% of indebtedness** of families in urban India can be attributed to healthcare costs of senior family members. Then, there is healthcare inflation in India, typically higher than general inflation. For instance, in 2023, it was 14%^{^}, far higher than the general inflation of 4.38%^{^^} that year.

This means appropriate provisions for meeting healthcare costs is a key requirement to be retirement ready. Besides provisions for adequate health insurance cover, one also needs to plan for future health insurance premiums, as they rise with age. Equally important are provisions for emergency funds for expenses not covered by health insurance.

6. What Will Be My Sources of Regular Income?

To be retirement ready, one needs to be sure of potential and adequate retirement income throughout retired life. For income sources needed to be diverse so that factors affecting one income source does not adversely impact home budget. So, there could be Systematic Withdrawal Plan (SWP) in fixed income debt mutual funds. Here, units are liquidated at regular intervals for regular income. This may be supplemented by interest income, dividends, life insurance annuities and rental income from property. As the tax treatment of regular income varies among investment options, it is important to establish a pecking order of tapping investments.

7. What Will Be My Investments In Retirement?

Retirement savings need to meet three broad requirements: emergencies, regular income, and growth of savings for future. For this to happen, one needs appropriate investments. Preparedness for retirement can be judged by the existence of plan with investments and the progress made in implementation.

As emergency needs require easy access or high liquidity, emergency fund investments need to be parked in low risk and highly liquid options such as bank account and liquid funds. Regular income investments need to provide adequate returns and can straddle a range of risk levels with lower risk, regular income investments categories from interest bearing retirement investments to fixed income debt mutual funds.

For inflation combating investments, one needs to consider equity and equity-oriented investments. To restrict volatility, one can consider index funds and large cap equity mutual funds, typically least volatile among equity funds. Similarly, one can also consider hybrid mutual funds like balanced advantage fund and equity savings funds. While they typically derive high growth from equity investments, debt and derivatives investments tend to keep the volatility in check.

Retirement planning is so much more than accomplishing a savings amount. It is more planning for a lifestyle transition. Answering our seven questions empowers you to ensure that the transition is a smooth one.

Source Reference

* https://www.ncbi.nlm.nih.gov/books/NBK109208/

** https://www.niti.gov.in/sites/default/files/2024-02/Senior%20Care%20Reforms%20in%20India%20Final%20Version%20Website-compressed.pdf

^{^}https://www.livemint.com/money/personal-finance/medical-inflation-in-india-reaches-alarming-rate-of-14-reveals-report-11700634947658.html

^{^^}https://www.statista.com/statistics/271322/inflation-rate-in-india/