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Retirement planning: How to make a success of it

Retirement is not an accident that hits us all of sudden. One must follow some simple steps to attain post-retirement paycheck independence.

india Updated: Apr 02, 2004 13:20 IST

Retirement is not an accident which hits us all of sudden. It is known well in advance when you are likely to retire so why dread preparing for retirement. When one is young, turning retirement into an opportunity or a calamity depends entirely upon the individual.



When people think of retirement, they think of relaxation, lazing around, spending more time with the family, travelling or spending more time in reading and writing. And they also think if they would have enough finances to have a comfortable time.


Attaining pay-check independence will not be on pipe dream if the following steps are followed with steady discipline, perseverance and through investing smartly.

1. Start saving early

When we are young and working, we think we will remain in the same state forever and very conveniently ignore the uncertainties of future. Nobody takes retirement seriously.

But the fact is that even a small sum of money saved regularly and invested regularly makes a big amount that comes in very handy after retirement. One should not believe that after retirement, one can place all savings into income generating investment and spend rest of life in happiness.

If someone does not plan early, there could be circumstances where one’s principal savings will have to be dipped into to supplement monthly income. In such case the savings may even get exhausted.

The formula here is "sooner the better". A more cautious investor believe in this principal and plan their retirement accordingly. They not only save, they save early and they save regularly. The idea is to make the power of compounding work for you.

2. Create a retirement plan

Develop a plan for saving based on your requirements at the time of retirement. The goals you keep for saving depend on your lifestyle but you will also need about 66 per cent of your pre-retirement income to maintain your standard of living when you stop working.

3. Understand your pension plan

If your employer offers a pension plan, understand carefully your benefit level, financial stability of plan and how long it takes to vest. Use retirement plans even if you already have enough money.
With retirement plans, your money grows tax deferred.

4. Balance your risk tolerance and your investment strategy

Evaluate your risk profile and then balance your investment strategy to invest in various avenues to get the most out of your retirement money.

5. Diversify your investments

Allocate your assets carefully. Depending on your work profile, divide your savings in equity, bonds, mutual funds and other avenues. Don't invest too heavily in one sector or any one company.

6. Save and invest regularly

Saving and investing regularly makes a big difference at the time of retirement. Investing at regular intervals builds your retirement fund over time and helps you to minimize risk and gives a
tension- free retirement.

First Published: Jun 29, 2002 14:14 IST