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Pre and Post Retirement Financial Planning

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Retirement is that part of your life when you will get out of work to live like a free-bird once again.

In most cases, the savings done till that moment will be henceforth be used for the rest of your life.

Retirement planning is an extremely important activity.

Failure to make a proper plan will lead you to an old-age poverty, no matter how much huge your corpus is at the time of the retirement.

Inflation cuts a huge part of your retirement corpus.

Inflation-apart, the lifestyle expenses of modern senior citizens is far higher than that of what it used to be, say 50 years ago.

For instance, the cost of health / medical care, expenses because of increased social circle, lifestyle expenses such as club membership and smartphones etc. are higher and their costs will only increase.

In most cases, the retirement corpus will have to be used for as much as 30 to 35 years after your retirement.

There are two aspects in retirement planning:

  1. Pre-Retirement Corpus Building
  2. Post-Retirement Proper Utilization of Corpus

Pre-Retirement Corpus Building

Maximize the amount of corpus you build by the time you retire using equity instruments such as equity mutual funds.

Start your equity savings as early in life as possible, preferably right from the first month you received your salary.

Post-Retirement Proper Utilization of Corpus

Ensure that the savings instruments that you use give above inflation returns at all times.

Give high importance to preserving the capital of the corpus.

Try to make a living out of interest or dividend rather than eating the retirement corpus itself.

Bank deposits might not be that attractive (though essential) during this phase.

Use the proper mix of instruments that reduces your tax out go.

Tax might have to be paid on an accrual-basis and not just at the time of realization on some instruments, such as Post Office National Savings Certificates (NSCs).

If your corpus is sufficiently large and you feel you are financially secure (by way of having a house, car etc.) and a lot of disposable cash, use equity-oriented balanced mutual funds for both allowing the corpus grow and yet be tax efficient.

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