Planning retirement at 40? Don’t ignore these factors

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With the increased life expectancy, retirement life has become much longer than one might anticipate. Hence, the need to create a retirement corpus to take care of sunset years has become all the more important.

That said, as a first step, one should plan the targeted retirement age and calculate monthly expenses post-retirement adjusting the inflation rate; with this in mind, the quantum of savings should be decided.

Post-retirement needs Also, it is really crucial to have a clear picture of the end-use of the investments made. For instance, people at the age of 40 years may have a goal to invest for their post-retirement life, their children’s higher education or marriage, etc. Such investment purpose may further influence the requisite capital for such investment as well as the investment horizon.

Also read: Retirement planning at 40: Various products one can invest in

One should also focus more on capital preservation while growing your capital, i.e., look at maximizing savings rather than maximizing returns. People with existing portfolios while planning for retirement can revisit their portfolios to align the asset allocation, tilting more towards fixed income and lesser volatile asset classes.

“One should focus more on capital preservation as one ages, i.e., look at maximizing savings rather than maximizing returns. People with existing portfolios while planning for retirement, can revisit their portfolios to align the asset allocation, tilting more towards fixed income gradually and lesser towards volatile asset classes. Health insurance is a must and hence, if one hasn’t yet taken it, this should be done immediately.” says Vaibhav Jain, CFA, Head of Sales and Partnerships, WealthDesk.

Liquidity of investments Also, liquidity of investment plays a major role while retirement planning. Liquidity refers to the ease with which the investment product such as the asset, security, etc. can be exchanged for or converted into money. An investment that is easy and convenient to sell/redeem at any given time is said to be highly liquid.

“Don’t try and keep everything liquid or handy after retirement. You still need portfolio growth so keep that in mind. Don’t go splurging as soon as you get retirement money, it can have a huge negative impact,” warns Shweta Jain, CFP-Founder of Investography & Author of My Conversations with money.

Risk appetite  Every investment except those backed by sovereign guarantee has a certain level of risk attached to it due to the volatility factor of the investment. Accordingly, risk tolerance would refer to the level of risk that an investor could undertake while making any investment. “It is recommendable for people near their retirement age to not invest in highly volatile products such as small-cap shares, derivative products, etc. until and unless they have sufficient stock market knowledge,” points out Suresh Surana, Founder, RSM India.

Post tax return One of the most overlooked aspects of the investment is the taxation aspect. When determining the choice of investment, it is always important to take into consideration the tax implications of such investment. The Income-tax provisions not only provides for tax exemptions on the interest and redemption value for a certain category of investments but also provides for the reduction of the investment amount from the taxable income (which is commonly referred to as tax deductions).