A salaried individual generally retires at the age of 60 years. They usually have retirement benefits under mandatory retirement schemes. However, the pension from these may not suffice their post-retirement needs considering rising inflation and improvement in standard of living.
On the other hand, the life expectancy of individual has been going up. Lack of financial back up will make it difficult for a retiree to lead a comfortable life.
It has become imperative to start planning for retirement at the earliest. Here are a few guiding principles for the retirement planning of salaried individuals.
Venture into the space of voluntary retirement products
Mandatory retirement schemes may not be able to cope up with the rising expenses. It is important to introduce voluntary retirement-focused solutions like PPF, NPS and retirement mutual funds.
An employee enjoys a steady cash flow in the form of salary. Hence, you can suggest them to invest in market-linked products like retirement-focused mutual funds through SIPs to get better risk-adjusted returns over long term. This will also inculcate healthy investing discipline in creating a corpus.
Ensure adequate and constant coverage
Many employees get insurance coverage under a corporate insurance plan, which is undoubtedly beneficial in times of adversities. However, if an employee changes his job, the coverage is not transferable. Further, the amount of coverage may not suffice the client’s requirement in most cases.
Irrespective of the coverage amount provided by companies, employees should individually buy term insurance and health insurance policies to get adequate insurance cover. If they delay buying such insurance policies, they may end up paying huge sum of money as premium amounts. In some cases, insurers may not issue fresh policies if they suffer from a major ailment.
Beware of the contingencies
Any employment is subject to possibility of job loss. Until your clients find another job, they should be able to continue with their expenses and obligations. Hence, it is normally advisable to have a contingency fund of at least 6 months. It must take into account all monthly expenses, SIPs and EMIs. This ensures smooth sailing and saves them from being penalized on non-payment of due obligations.
Manage the behavioral aspects
In market-linked products, there is a tendency to withdraw when the markets outperform. Likewise, certain important events like children’s marriage or higher education may tempt your client to withdraw from their retirement corpus partially. It is thus important to plan for such milestone events and have separate dedicated funds. Keep a check on your client’s sentiments and instill discipline in them.
