Retirement is a big life event and getting it right is a key financial task. Thankfully there are many signs that indicate you are ready to hang up your boots.
Here are six such indicators:
Imagine a situation of retiring with your mortgages yet to be paid off. Running a car or home loan, while your paycheques have ceased to come. It will not only eat away your income stream after retirement but also come with the onus of having to provide for its payment in the future as well.
It is therefore prudent to delay retirement till you pay off all your debt. If you are already debt-free, you are one step closer to retirement.
2. Saved enough
Don’t forget the gold retirement rule of saving at least 25 times of your annual household expenditure at the time of retirement. So, if you plan to choose a retirement lifestyle that requires a spending of Rs 50,000 a month at the time of retirement, ensure you have at least Rs 1.5 crore worth of retirement kitty. At a withdrawal rate of 4%, it is likely to provide income for another 25-30 years. If you are retiring early, you need to save much more.
To elongate your income stream, consider exposure to equities after retirement. Consider income flows in buckets of five years, and start investing the rest into equities to maximize the lifespan of your retirement kitty.
3. Done the test drive
It is not just about hitting a magical retirement sum that decides your financial readiness for retirement. People need to walk the talk. If you have chosen to live a certain lifestyle but find it hard to adhere to in reality, then it’s time for a course correction. For instance, one might find that a life in the suburbs might not be as cheap as envisaged.
So, do a test drive and check if you are able to live up to the budget. Six to 12 months into the testing phase and you will get a hang of it. If your spending is more than those budgeted, perhaps you can postpone your retirement or work part-time to do the ‘catching up’.
4. Provided for health expenses
This is often the most ignored part of the budgeting. As you age, your health insurance premium goes up. If you have taken insurance from your employer, it will cease to be after you quit the job. Alternatively, if you have taken health cover from a private insurer, usually it starts getting costlier at a later stage.
Have you provided for any medical exigencies that can throw your finances off-gear? Not planning for it could dent your retirement savings and reduce its lifespan. One way to tackle the issue is continuing with a family-floater health policy even after retirement (that will cost a bit though).
5. Have emergency buffers
There could be unexpected expenses – say in the form of house or car repairs – which could eat away your savings. It is therefore recommended to have a large emergency fund to provide for up to 12 months of your household expenses. Choose a reliable liquid fund to park it.
6. No dependants
Do you have children who are yet to finish their education? Or parents who are senior citizens and depend on you for financial assistance? It is incumbent upon you to provide for the children’s expenses at least till they join the workforce. Or take care of expenses of senior citizens– be it medical or otherwise. Check if you have achieved major financial goals such as children’s higher education, home ownership and so on.
Pay off all your liabilities and hit the retirement savings target before thinking of retirement. However, do the necessary reality check and be mental prepared as well.