Every individual in the world plans on retiring after reaching a particular age or after working for a specific number of years. Once you step into the retirement phase, you generally tend to lose an active income stream. This is precisely why it is important to plan for your retirement as early as possible. This way, you can stay one step ahead of the curve when you finally plan on hanging up your boots for good.
However, when it comes to retirement planning, many individuals are not fully aware of the facts and intricacies linked with it. If you’re one of them, then this is for you. Here are 8 facts about retirement planning that you may not know.
1. It is essential to give more importance to financial freedom rather than retirement
When it comes to retirement planning, individuals often tend to focus only on the retirement age. Instead, their focus should be on ensuring that they’re financially free after crossing the retirement age. Financial freedom is about not having to depend on anything or anyone for leading your day-to-day life.
Work towards achieving financial freedom early on in your life. This will allow you to live a comfortable and a financially healthy lifestyle after your retirement. Remember, when individuals approach retirement planning with financial freedom in mind, they tend to do well.
2. Life insurance can be a lifesaver during your retirement phase
Life insurance is an important financial tool that can help keep your family secure if something were to happen to you. Even after your retirement, you may still have some dependents such as your parents, your spouse, or maybe even your children. Looking after their well-being is probably one of your goals already.
A life insurance plan may help you do that. The death benefit pay out that your nominees receive can be used by them to take care of their expenses, provide for your dependent children, or maybe to even pay off any outstanding debts that you may have left behind. It is preferable to opt for a long-tenure life insurance policy while you’re young since you can save a lot on premiums.
3. Along with health insurance take critical illness rider or heart plan from a life insurance company
Having a health insurance plan is as important as a life insurance plan. Now, as you age, the chances of developing medical conditions and illnesses may go up. And considering the cost of medical treatment these days, you can even end up depleting all your savings during the treatment.
However, a health insurance plan can prevent all of that from happening. A part of retirement planning is investing in a comprehensive health insurance plan that covers all bases. You may even want to include your spouse and your children onto the plan as well. Apart from investing in a health insurance plan, also work towards building a medical corpus separately.
A Critical Illness Rider is a highly popular addition to term insurance policies, and it is designed to assist policyholders in ensuring the continued financial security of their families through challenging times. A critical illness rider is an extra coverage that, in return for an increased premium, may be added to an insurance policy. The critical illness rider stipulates that a one-time payment will be made to the life guaranteed’ s family if the life assured is diagnosed with one of the critical illnesses on the rider's list while the policy is still active. Critical illness riders provide policyholders protection against serious illnesses that pose a risk to their lives. This rider offers the family of the life guaranteed financial assistance at difficult times and assists them in meeting the costs associated with treatment for a sickness that has been identified.
4. It is crucial to switch your investment perspective as you get closer to retirement
When you’re young, you tend to have a more aggressive risk appetite. This effectively means that you can generally afford to invest in high-risk investment options like equity. However, as you age, your risk appetite tends to get lower.
And so, it is important to switch your investment perspective accordingly. You may choose to invest in slightly safer options like debt instruments. And finally, as you get closer to retirement, you generally get into capital preservation mode with extremely low risk-taking ability, in that case, it would be preferable to switch your investment perspective towards products which are more secured in their investment approach and returns.
As your investment perspective shifts, your asset allocation should also see a change.
And as you get closer to your retirement age, you can reduce your equity component even further down to 20% and increase your debt component of your portfolio to up to 80%. Doing this can not only help you beat inflation, but also helps you stay ahead of your retirement planning goals.
5. Retirement planning is also about constant reviewing of portfolios
To properly carry out point number 4 and 5 mentioned above, it is important to keep an eye on your portfolio. By reviewing your portfolio at certain specific intervals, you will be well poised to tweak it to suit your goals and your investment perspective at the right times.
6. It is important to set goals even after retiring
Many individuals think that once they reach their retirement phase, life comes to a full stop. However, that’s simply not true. After retirement, you may get free time, which you can use to set and satisfy life goals such as a long foreign vacation with your spouse or help your children get well settled in life.
With this, we’re done with 6 facts about retirement planning that you should know and be aware of. If there are any specific things in this list that you haven’t done already, now may be a good time to get them done. This way, you can enjoy your retirement life the way you want to, without having to depend on anyone.