Retirement planning is one of most important financial goal every individual is worried about. If you are not prepared for it, you will never retire. Just Imagine, you have spent your whole working for money. The purpose of this article is not to scare you, but to share with you an important aspect of life. People dream about doing many thing post retirement which they could not during their working years. It’s not impossible but not every person is able to achieve this important objective of their life.
It requires careful, systematic and disciplined approach to retirement planning. Obviously, planning for retirement is not a guarantee of peaceful retirement. But at least you are better prepared to face adverse events. In this article we will discuss possible risk which we face post retirement. If you don’t plan and not prepared, then retirement is not possible for you.
Living Too Long
One of the biggest risk we face post retirement is living too long. What if you don’t die as per your assumption. Are you prepared to deal with longer retirement years. Post retirement your ability to earn money will reduce. Do you enough money to survive. Or is there anyone who will take care of you. If you Don’t want to depend on government or social security system in India or on your child or spouse. Then you have to be financially independent. Create big enough retirement corpus which take care of your post retirement years. To create retirement corpus start saving early. It requires you to save for more no. of years and earn returns higher than inflation.
Another major risk retiree faces is medical risk. As age increases medical treatment expenses and regular medicine expenses goes up. To be better prepared for this risk, you need to follow healthy lifestyle and disciplined habits. Or other option is be financially prepared to deal with financial cost of medical risk . Create a separate corpus for medical risk post retirement. The cost of medical expenses is growing faster than general expenses. There is no ideal amount but corpus over and above your retirement corpus will help you to tackle medical risk effectively.
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Inflation, Your Biggest Enemy
Every individual in different parts of the world is worried about his retirements. The biggest enemy which can derail your retirement plan is inflation. To deal with this you need to earn more than inflation. Focus on assets allocation. Take risk, When you are capable of taking higher risk. Beat inflation with higher margin in the initial years of your working life, so that you are not worries later on. Post retirement as well our investment should be in right assets classes to earn positive real returns.
Interest Rates Going Down
As inflation goes down interest rates also goes down. If your major source of earning post retirement is through interest income then you are the most affected person from this. Ideally post retirement, your regular income should be well diversified. It should from multiple sources including Rent, Interest Income, Dividend income, If possible royalty or business income.
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Not Saved Enough For Retirement
What if your corpus is not enough to take care of your life post retirement. If any of your assumption goes wrong while calculating retirement corpus, it will be difficult to survive post retirement period. So ideally, while calculating retirement corpus, we should consider conservative assumption about inflation, expected returns, life expectancy etc. and there should be extra surplus money to deal with any deviation in assumption.