When you are nearing your age of retirement, you might want to make most of the remaining earning time and protect your wealth or even try to raise the bars as much as possible. Such a goal is common to have so you can spend the rest of your lives without having to worry about finances. There may be several other reasons behind the thought.
As it is always said, a structured financial plan is a crucial factor to realise all your dreams. Not just planning your finances, you must also invest your money on the products that are in line with your plan. It is advisable not to focus only on one financial product and not to ignore the power of planning finances.
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Here is a checklist of advice to be followed by individuals who are nearing retirement:
- Even Guaranteed Products May Include Risks
Most of us feel our funds are in safe hands when we see a product claiming ‘guaranteed’ returns and turn a blind eye towards the credit risks it carries. Some of the guaranteed-return investments are bonds, debentures, company deposits, and jewellery schemes. These instruments may default on payments and come with concentration risk. The entire investment you made in these instruments may be lost in the case of default. Also, when you calculate the post-tax risk-adjusted returns, they may not even seem worth the wait.
- Start Planning Retirement Early
Beginning to plan your retirement early will save more time for your investments to stand the market volatility. If you start soon, like in your 20s or 30s, you will have the opportunity to redeem your equity holdings two or three years before your retirement and reallocate the funds in debt products to get monthly income as well as protect your wealth from huge market drops.
- Consider Tax Liabilities
You should know that most fixed-income investments come with a tax liability. The solution is to check out tax-efficient products for investment, such as a systematic withdrawal plan (SWP) that comes along with short-term debt funds. Keep in mind that you can only start an SWP if you stay invested in debt funds for a minimum of three years.
- Have Your Own Health Plan
Instead of entirely relying on the employer’s health insurance plan, it is high time to get one for you and your dependents. You know that the maximum entry age to buy individual policies are strict. So, don’t wait until you retire from your job to buy a separate one. It will be useful to have your policy from the age of 50 years at the most.
- Avoid Taking Loans After Retirement
It is advisable to not take any loans after you retire, for whatever reason. Gold loans, property mortgage loans, and loans for your kid’s wedding—all these can take up a significant share of your monthly pension, making it hard for your survival. If you have a property to pledge for the loan, you may sell it off, use a share of the resulting funds to whatever emergency you have, and keep the rest with you. Isn’t it useful to have a liquid asset as compared to an illiquid one with a low rental yield?
It is time for you to revisit your retirement plan and check if you have overlooked any risks. Well, if you have missed any, go ahead and correct them before it gets too late!
For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in
