You and your spouse are contemplating retirement, what are the important things to do?
Well let us start at the very beginning. Assuming that you are Doing It Yourself, or you have an adviser (but you are not sure of his competence) it is time that you take charge.
- First and Foremost go into a meditative state: no disturbances. No outside noise. No laptop, no phone calls. Ask yourself what portfolio combination (aka asset allocation) will make sure that the money lasts till you are 100 years old, at what age you think you will not be able to apply your mind to complex portfolio questions (age 70 is a good guess, better to err on the the safer side), and then try to fill up risk questionnaires available online. Vanguard has a 11 question risk tolerance questionnaire, and for more comprehensive ones you will have to pay. PLEASE note that it takes many years to understand your risk profile – because your brain thinks differently when the sensex is 30,000 and when the sensex is 21000 (on the way down from 30k). It also thinks differently during a bull run (not just a static number) and in a bear run. It also depends on how addicted to financial porn. So first relax, then fill up the risk profile.
- Are you saving enough: The old theory used to be you need to save 10% of your income right from the beginning and that would build a nice corpus for you. However, if you are not a government servant you need to be prepared for some disruptions in your career – voluntary or involuntary. If you are a woman pregnancy is likely to interrupt your ability to invest /save regularly. If you have a sibling / parent who needs medical care you might take a break, etc. Assuming that there will be some interruptions targeting a 15% contribution to the retirement basket is a better idea. See where you have reached and have you made that contribution. If you are just 35 there is room for some quick corrective action. If you are 55 you may have to push your retirement back or make a more aggressive asset mix to achieve the targeted corpus.
- Do you have a sensible investing strategy: This means shutting out all the financial porn, creating your own financial plan, investing and doing a regular audit. Sure your mind knows what you are doing. Try writing it down and monitoring it on a regular basis. Too many idiots think investing for the long term means buying an equity share and seeing it after 20 years. That is stupid. You need to watch Quarter on Quarter and DECIDE that the share is worth holding over a 30 year period. IT IS ACTIVE INACTION, not passive laziness. So are you doing this asset cleaning, asset allocation, taking a risk tolerance test regularly, having the portfolio reviewed by a friend / IFA / …etc..etc.
- Are you fine tuning your plan: Having a strategy is fine, make sure that you are implementing it perfectly, or taking corrective action. A health emergency, a dip in earnings, a student draw down by a kid, major repairs to the house – you may have dipped into the retirement fund. Take corrective action to replenish the funds asap. If you need a small amount decide that you will borrow that money but you will NOT WITHDRAW from the retirement plan.
- If you are about 10 years away from Retirement, you need a Retirement Income Strategy: You have to learn about retirement basket and retirement buckets for your retirement income strategy. SWP from an equity fund is the stupidest thing to do. If you do a back testing over a 30 year period in India it will feel like SWP works – remember we have had a rising market from 1979 till date. However there can be many rolling periods in between where SWP did not work. It is scary, and makes no sense. Learn when there is time.
Five is a good number to start…
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