Building a retirement corpus in your 50’s

Building a retirement corpus in your 50’s

In this article you will read about

• Consolidate your retirement savings
• Set a retirement target based on current expenses
• Continue investing retirement savings to beat inflation

You are about a decade or less from your retirement and chances are you already have a plan in place. Ideally by now you would have retired your debts – home loan and education loan for children, with more monies available towards your retirement. For many people, this is also the period when their income peaks. If your retirement savings aren’t as much as you wish it to be, do not worry; you are late but there is still time to catch up. There are still plenty of steps you can take to help yourself retire on your own terms.

This is also the phase, when your strategy to arrive at a retirement corpus should be based on the expense replacement method. Start the journey towards financial freedom by targeting at least 30 times the expenses that you are likely to have at 60. Start by listing out your current monthly expenses which are essential and will continue when you retire. So, you can do away with expenses towards travel to work or any other such expense which you incur now, but will not when you retire. Once you have a figure, you can adjust it to inflation and plan for the retirement corpus you would need.

Do ensure that you have adequate health insurance, as healthcare expenses could leave a big hole in your retirement corpus if not planned in advance. Moreover, if you already have health-related problems, you would know how it may have impacted your earnings and could relate to the need for a corpus for future health-related setbacks that you may have.

Suppose you are 55 years old and your current monthly household expenses are Rs 50,000. You also have accumulated Rs 60 lakh towards retirement; you expect inflation to be 7% and your investments to earn 10% returns. You expect to live till you are 80 and retire when you are 60. For a smooth retirement, you will need Rs 1.28 crore retirement funds, which means you need to now invest Rs 41,350 each month at 10% to maintain your standard of living.

There are certain other factors that you need to keep in mind when you are this close to retirement. For instance, you are in a phase when you are unlikely to have any other financial goal apart from retirement. So, your investments should be now guided only towards your retirement. Keeping a diversified basket of assets is useful to managing your financial life in retirement, so plan ahead. Combine all your savings and investments into a single portfolio so that you are able to manage and keep track of your investments by the time you retire.

If you are part of any formal pension plans, you are likely to receive a regular pension payout. This sum may or may not be sufficient for you to manage the expenses in retirement. But, you could get an estimate of how much you will get each month and accordingly use other savings and investments to supplement the same. If you have excess by way of regular income stream; you should invest the surplus to ensure you have sufficient sums beyond your planned retirement years.

At no given point in time even in retirement, you should stop investing. To ensure you are able to maintain your standard of living, your savings must beat inflation and the only way for it to happen is for you to continue investing. Your risk taking ability may be less, but you could consider investing in appropriate financial products so that the worth of your savings remains. Do remember that unlike several financial goals that you could earlier achieve with a loan, when you retire, with no active income; there is no type of loan available to you when you retire.

More importantly, you need to choose where you will spend your retirement. If it is in the same city where you are working, it may not be difficult to adapt. However, if you are going to move cities when you retire; you should factor in expenses to move and also how you will spend time in retirement. Given the increasing longevity, you will need to assess the performance of your investments closely in retirement. At no point should you spend money in a manner that you are left with no money when you need it the most.

Checklist

• Get your finances in order
• Be debt free
• Choose your retirement date
• Have adequate health insurance, including critical illness
• Create income streams to meet both fixed andvariable expenses
• Continue investing to suit your risk profile
• Draw up a will and decide how you wish your money to be used

Next steps

1. Use a retirement calculator to arrive at your retirement corpus
2. Consolidate your investments in a single portfolio
3. If you are falling short of your target, increase your investments to the goal