When you are approaching retirement then you have to relook at your finances. When are you going to retire, how much income will you need, will you have to keep working and many such others questions need to be addressed. How should you approach your investment will rest on how you retire –financially y well or with loads of responsibilities. This review of your situation should be done few years before you retire. Ideally when you have 5 years to retire then you should relook at your complete financial situation to assess of you need to change your approach. Here is what you should do while you are reviewing our finances for retirement:
1. Reassess your requirement- Though you would have identified your retirement needs before this is the time you should reassess it. The reason being that your financial situation might have changed and so your retirement requirement. Sometimes while planning for it earlier you do not realize that there may still be liabilities when you retire. If you asses it well before your retirement than you are in a position to bring in change in your approach to meet any shortfall if arises. You may have to continue working or may have to relocate if your financial situation is not well. Whatever be the situation your reassessment will tell you how near you are towards meeting your retirement requirement.
2. Review your Asset Allocation: When you plan your retirement in early age then you are in accumulation phase. Then growing your money with maximum returns is your objective ans so taking a higher exposure in volatile assets like equities is in your mind. But as you are nearing retirement then this objective changes. Now you wish to protect your money so that you can meet your finances in your retirement years. You no longer want to see ups and down in your investments. This change in strategy will need a change in your asset allocation. If you are higher in equities you may have to bring it down so that you can protect the growth you have received uptil now. Thus when you are nearing your retirement you will have to review your asset allocation and bring change as per your objective. How much to hold in which asset class will be an analysis you would have to do.
3. Take Full Advantage of Your Retirement Benefits- When you are 5 years away from your retirement it may be the time to scale up employer benefits like EPF, NPS, Gratuity& Others. You would be at peak of your career and so your income. Though you may start lowering exposure to equities you may still need avenues which can grow your money at a good rate. EPF is a valuable resource for this objective. One can increase contribution through Voluntary Provident Fund and enjoy the benefit of compounding growth on the money. With almost fixed higher rate of return than any other debt instruments it can meet the requirement of accumulating the retirement corpus.
4. Lower Your Debt: You may have some debt running even at this stage. Consider repaying all your debt before your retirement so that you can enjoy your income. Start reducing credit card usage and try paying cash for your expenses.
5. Prepare for your Medical Cost- This may be the major expense in your retirement years. Th health issues may have started or you may be expecting it them in later years of life. Ho would you cope up with need to be planned now. Consider taking a standalone health insurance if you have relied on your employer insurance uptil now. A standalone health policy needs 5-6 years of continuation to cover all major expenses including any preexisting ones. If bought now then by the time you retire the insurance would be paying off the benefits. Keeping a separate health fund should also be in your planning since health insurance at too higher age may not work well.
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