Retirement planning is not an easy task. It requires an organized approach to ensure that life post retirement for a person remains worry free for an individual. Since in our country, social security is conspicuous by absence for majority of people, it becomes very important for a person to prepare for retirement as early as possible. But preparing for retirement planning alone is not enough. There is a need to check the progress of retirement planning periodically. There are many milestones for this, but the most critical stage is to evaluate retirement planning progress at the age of 50. So, what are the five key things that you should look at the age of 50 to check if you are ready for retirement and have done your homework properly? Let us have a look at them:
- Have you paid all your debt and secured your home? – Having debt at the age of 50, is the last thing that you should think of. Before you turn 50, you should repay all your debt including debt on home loans. If you become debt free before you turn 50, you still will have around 10 years to accumulate good amount of wealth. It may be easier said than done in some cases, but it should be the endeavor of every person to pay all debt by the age of 50. Many people feel that they will get tax benefits on home loan and hence they should continue to have loan in their portfolio. By the time a person turns 50, even if he/she has home loan, interest component becomes very small in overall loan and hence getting tax benefit on interest payment goes down significantly. Repay your home loan, if you can.
- Are you saving 40% of your income? – By the time you turn 50, you must start saving at least 40% of income in financial assets. These assets will generate cash flows for you. There is nothing sacrosanct about 40%, the more the merrier. This should exclude Employee Provident Fund (EPF) saving. In order to save more, you need to change the approach. Rather than following income minus expense is savings, follow the approach of income minus savings is expense. This will help you 40% savings target.
- Have your purchased adequate health cover? – If you are working for a company, you may have health insurance coverage given by your employer. But once you retire you need your own health insurance. If you have not thought over buying health insurance, 50 may be the age to pause and think over it. Buy health insurance for your spouse and self. If possible, buy a critical care health insurance as well. If you are lucky enough to get health insurance coverage from your employer, even post retirement then you can afford to ignore this.
- Have you accumulated financial savings 10 times of annual expenses? – This is one important metric to check for retirement planning. The annual expenses here mean expenses that you incur on a day to day. If you have financial savings 10 times of annual expenses, you have done 50% of retirement corpus accumulation. The age from 50 to 60 can help you prepare for remaining financial savings that may be required post retirement. These savings can be in different forms such as EPF, gratuity, fixed deposits in banks, investments in shares and mutual funds etc.
- Have you built an emergency fund? – It is good to build emergency fund at all stages in your life but more so, when you are 50. At the age of 50, uncertainties could be much more than what it is when a person is young. Hence, it is good to build emergency fund before you turn 50.
In brief, these five milestones will have a person access where does the person stand in the journey of retirement planning. These five milestones are not essentially the most important ones for every individual and can vary as well. But it would be a good idea to try this.