5 Steps to Retirement Planning

5 Important Steps to Retirement Planning - Meld Financial

These days everyone wants to retire early. You might hear your bosses or even colleagues pondering over the idea of retiring at the age of 45 so that they can pursue their dreams or hobbies. The thought of retiring early may sound welcoming, but one needs to be certain that they have accumulated enough corpus in their kitty so that they are able to spend the remaining of their lives without any financial burden or obligations.

If you want to enjoy the luxuries of retired individuals from a young age, here are the five crucial financial planning steps that everyone must follow –

  1. Make a list of all your recurring expenses

While it is essential to make a list of your recurring expenses like utility bills, house rent, etc. so that you know the amount that you need to get through the month, it is also apparent that you list down other goals in terms of priority. It could be anything ranging from your daughter’s wedding or starting up a fine and dine restaurant or going on a world tour with your better half. You can plan for all your goals separately and build a fund for each of them separately.

  1. Build an emergency fund

Do not let life’s unforeseen exigences disrupt your plan of retiring early. It may be easier to target defined financial goals, than planning for expenses you have no idea about, for example, medical emergencies. Any such financial emergencycan not only hamper your retirement planning but can also exhaust your savings. Hence, investors must build a contingency fund by investing in some equity related instruments so that they are able to generate inflation countering returns over the long term and reserve a separate corpus to smoothly glide over any such unknown financial emergencies.

  1. Do not entirely depend on conventional investment avenues

Many people do the mistake of completely depending on traditional investment instruments for retirement planning. Although it is true our grandparents and even parents highly depended on avenues like Public Provident Fund, Employee Provident Fund, Bank Fixed Deposit, Post Office Deposit, etc. this needs change in today’s time. Fixed interest offering avenues are currently giving 4% to 5% returns and one should realize that with such low returns is not only impossible to retire early but even if you hang your boots at the average age of retirement which is 60, you still won’t have enough savings to last for the next 20 years. Investors should consider solution oriented schemes like retirement mutual funds that have outperformed conventional investment avenues in the past and have the potential to help you achieve your long term financial goals.

  1. If investing in retirement funds, start a SIP

If you have decided to start your retirement planning journey with mutual funds, then you should consider the SIP option. A Systematic Investment Plan (SIP) is the easiest and most effective way to achieve your financial goals. Here, investors can decide on an investment sum and then continue to invest this sum in any mutual fund scheme of their choice till their investment objective is accomplished. SIPs are flexible and one can start or stop their SIP investments at any given time and do not have to pay a fine or a penalty for cancelling their SIP midway.

  1. Start early

The biggest mistake that a lot of individuals do with retirement planning is that they come to a realization in their late 40s or early 50s. You can’t be that late if are looking to build a commendable retirement corpus. Make sure that you give your investments enough time to grow so that they can give you sizable yields.