scorecardresearchFinancial planning: Why is it important before you plan to retire in 2023?

Financial planning: Why is it important before you plan to retire in 2023?

Updated: 12 Jan 2023, 12:17 PM IST

Plan of action is important when one is near to retirement. This article will help you in understanding the importance of financial planning before retirement so that when the time comes it becomes easier for us all.

Your Question Answered: Planning for retirement, education and managing finances

Your Question Answered: Planning for retirement, education and managing finances

We all know long-term investing is good, but what if one needs to withdraw money for their financial goal? Then, considering the current market situation being very volatile, what shall we do?

Do we need to stay invested or withdraw our funds?

These are the crippling questions in everyone’s mind, but this time, make your New year resolution to be financially aware and free!

In one of my previous articles, I wrote about how any investing strategy fails, if there is no liquidity created - strategically.

The actual panic is felt by all those who are near to their retirement, as the bank savings interest rate is low, equity portfolio has fallen up to 15-30% and their financial freedom is staring them. Now they neither can withdraw funds on loss, nor wait until retirement. This situation can be of anyone who poorly manages their assets. Long term should also end someday, as excess of anything is bad.

Consider the FIRE concept, where one makes a strong plan with perfect diversification between equity, debt and other asset classes along with a cushion for retirement. Similarly, an individual needs to create a backup plan for their retirement, rather than entirely depend on the existing investments avenues or the traditional Retirement Avenues.

Retirement period is the time when you relax, take it easy and live a life of comfort. However, this doesn't mean that you can be ignorant. Plan of action is important when one is near to retirement. This article will help you in understanding the importance of financial planning before retirement so that when the time comes it becomes easier for us all!

In the past, our parents preferred PPF or EPF as sufficient for their retirement corpus. Today, with market development & technology advancements we have several avenues to build our retirement corpus irrespective of market conditions.

Here are some worth noting investing options to retire safely in India:

  • Public Provident Fund
  • Employee Provident Fund
  • National Pension Scheme
  • Senior Citizen Savings Scheme (SCSS)
  • Retirement Funds
  • SWP in Mutual Funds
  • Annuities
  • Reverse Mortgage and other schemes to create a multiple source of income.

Schemes like retirement funds where you in Invest in equities through a fund manager, similar to NPS. Accordingly, if you received a gratuity then systematic withdrawal plan in mutual funds will be another best option. Besides, if you are living in a house, then you can also opt for reverse mortgage where you are letting the bank pay you interest. And if still you have any doubt/confusion then, Consulting your SEBI registered investment advisor is one of the preferred ways to make the retirement journey successful in 2023.

How to manage your retirement corpus prudently?

Here are some of the key benefits of good management:

You get higher returns on your investments in general, which means more money for you in the long run. These can mostly be achieved by absolute diversification across different types of stocks and other investments to maximise returns on every penny saved.

This is a very crucial decision as if one company or asset is tanked then other investments can save you from Potential losses resulting in less losses.

The bottom line here is financial planning is critical before you retire.

Before retirement it is important to understand your financial goals. Things that you want to accomplish in your retirement years? What are your priorities for how and where you spend money during this time of life?

Besides, here’s the checklist one must look before planning your retirement in 2023:

Don't touch your PPF/Mutual Funds/Other Investments until you're ready to retire, unless it's already in good shape or you need the cash flow for a down payment on a house or car.

And then after retirement:

Keep contributing into a monthly SIPs/SCSS as long as possible.

How much should we save?

Depending on financial goals like child marriage, health costs, mortgage payments (if applicable), etc., consider saving at least 10% annually—and preferably more than 20% if possible.

How much should we spend?

Consider cutting back spending on luxuries like vacations or dining out during this stage since those expenses will likely increase once retired due solely because they were not considered before now.

Know your expenses once you retire:

Once retired, dynamics of expenses are different than pre-retirement. If you are planning for a fixed income, check the costs of all major desires and decide whether they should be fixed or variable so that it doesn't depend on how much money you make from work.

If you have a variable income and want to keep track of where it comes from (for example, interest income), figure out what percentage that represents each month's take-home pay so that there aren't any surprises when it comes time to calculate expenses later on during retirement! And then look at how many months into retirement it is before these costs start coming up again... Make a list of all your assets.

You’ve probably already thought about this, but it is important to make a list of all your assets.

Asset classes: You may have stocks, bonds and cash all in one place. If you invest in stocks and bonds separately with different brokers, then consider them as separate investment accounts too.

Types of assets: Type of asset is important to evaluate the amount of investments and withdrawal. This comes important of diversification part too, better shield and mix of asset classes means managed income & expenses in retirement.

Plan your finances well in post retirement days

Planning is the key to your financial future. Make sure you have a plan in place before you retire, and stick to it! Don't wait until the last minute, or put off planning until later in life when it's too late. Also, don't rely on your children to take care of you, make sure to not be dependent on anyone.

Lastly and most importantly, don't rely on your spouse! They will change once they are no longer working full-time outside of the home as well; this means that as both parties age together (and hopefully grow spiritually), there will be less need for one another financially as compared to earlier times.

In the end, the best way to live your retirement is in a manner that gives you balance and satisfaction. You may have heard about some of these tips and techniques but we hope that you have also found them useful in your life right now.

Sanchit Taksali, is a Certified Financial Planner with more than 7 Years of Financial Industry Experience. Currently, he is handling the Wealth Management Department at the Sebi-registered investment advisory company Kedia Capital Services. He can be found on Twitter at @sanchittaksali and on Instagram at SanchitTaksali.

We explain what different categories of FIRE refer to. 
First Published: 12 Jan 2023, 12:17 PM IST