Prepare for healthcare needs

In the initial years of retirement health may not pose a big concern and you may not incur much expense on it. As one progresses, medical expenses can shoot up exponentially. A single hospitalization can wipe out a good portion of your savings in case of critical illnesses.

There are three things to do to prepare for healthcare costs in retirement: 1. purchase an adequate health insurance policy for your spouse and you. The earlier in life you buy this, the better deal you can get in terms of premium, coverage, discounts, etc. 2. Get a critical illness policy which pays a lumpsum amount sufficient enough to treat major diseases like heart attack, stroke, cancer or kidney failure. 3. Plan and allocate a portion of your retirement fund contribution for medical expenses.

Plan actively and save adequately

Since retirement is such a crucial goal you need to plan for it. Indian family and society values make people feel obliged to save and provide for their kids' education and marriage but few count retirement as a goal to save for. This needs to change and retirement needs to be viewed as a goal as important as children’s education and marriage. Your savings and investment need to be planned accordingly.

How much you should save for retirement depends on the corpus to have in place by the time you retire. This corpus in turn depends on factors like - the lifestyle you desire post retirement, your current living expenses (excluding EMIs, spends on children and work travel), years left to retirement and expected inflation. Aim to start with a savings rate of 20% of the monthly income, and gradually increase to 40-50% as other major liabilities are taken care of. The actual ideal rate will vary from person to person depending on individual circumstances.

Invest wisely before and at retirement

Diligent savings alone will not suffice to cover the expenses required for the 15-25 years of retirement; those savings must be invested prudently to grow well. If you are 5 years or more away from retirement, at least some part of your planned contribution can be in equity mutual funds. While planning for long term goals, it is extremely important to choose products that can give inflation-beating returns. Equity funds are such products.

Once you hit retirement, it is again crucial to make wise decisions with how the accumulated corpus will be invested. Be cautious with the choices suggested by friendly bank RMs and agents. You will now be withdrawing from your corpus on a regular basis. It becomes important that your corpus outlasts you.

For a crucial goal like retirement it is highly advisable to consult a good financial planner. Such a person will study your personal goals and financial situation and help create a roadmap to achieve goals. He will also help in choosing the ideal products and to monitor progress towards goals, make changes, if necessary.

Retirement is meant to be a time of happiness and care-free living. The time to make that happen is while you are young (or middle-aged) and working.

(Authored by Mr. Amar Pandit, CFA, is the Founder & Chief Happyness Officer at HappynessFactory.in)

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