I got inspiration to write this article as I was thinking about my own retirement and how I should go about managing my money for it. But before I got started on actually making and executing a retirement plan (which I will detail in my subsequent blogs), I realized that I had to ensure that the plan is comprehensive and addresses all the concerns of life post retirement. Here is a checklist of things one must address, in order to make a good retirement plan:

1) Planning for any Obligations / Outstanding Debt

While this is very obvious, it is worth reiterating. Before you start counting how much money you have saved for retirement, you need to keep aside some of it for any remaining obligation you may have, such as an outstanding loan, your children’s education or their marriage. Once you have set aside some money for these obligations, you will have an accurate estimate of where you stand in terms of the funds you have available for retirement. This basic step will give you with a more accurate number to work with and you can start planning your retirement accordingly.

2) Having an Emergency Healthcare Fund

Everyone knows that life expectancy has increased due to better healthcare facilities but seems to forget that better healthcare comes at a cost. While most of us have health insurance, we will only realize its coverage and assistance when we need to use it. Apart from that, we have to also account for inflation – especially in the healthcare sector. For example, we may have a health insurance cover worth ₹10 lakhs, which covers most procedures today. But in 20 years time, these procedures could cost double or even triple, while your Insurance cover has remained the same. Furthermore, there are many procedures that are not even covered by health insurance. Keeping all this in mind, one has to set aside some funds dedicated towards healthcare. Ideally, these funds should be in a Fixed Deposit or a Debt Mutual Fund so that one has easy access to them and they can grow at a rate which is in line with inflation. For those without any health insurance, this becomes all the more important.

3) Planning for Regular Income- Adjusted for Inflation

This is the core of retirement planning. While there are many options which can help you generate regular income post retirement, such as Fixed Deposits, Annuity Plans, Debt funds, etc, most of these plans do not account for inflation. Not accounting for inflation is the biggest mistake most people make while planning for retirement. While you should invest a large part of your corpus in guaranteed/ less volatile financial instruments, you should also invest some of it in comparatively riskier investments (Read: Equity), and let that money compound, so that overall, your retirement corpus keeps pace with inflation. If you invest all your money in safe products (which give lower returns), at some point, you will have to cut down on your standard of living. Always remember that what is adequate today will not be adequate in the future. Budget for this, especially since there is a good chance you and your spouse will live for 30 years or more post retirement (without any additional income).

4) Leaving behind a Legacy

Whatever Legacy you wish to leave behind for your children should be planned separately from your core retirement income generation strategy. For example, a Return of Purchase annuity plan gives a much lesser monthly income than a plan in which return of purchase option isn’t chosen. For the sake of leaving a legacy, you will end up compromising on your standard of living. Instead, a separate fund should be set aside to ensure that you leave behind an adequate corpus. For example, if you were to invest just 3.5 lakhs today, it would grow to about Rs 1 Crore in 30 years (assuming a return of 12% p.a). Such a rate of return is only possible in riskier investments. However, because you are only planning for a legacy and can leave these funds untouched, a relatively small amount can grow to a very large one due to the power of compounding.

5) Keeping it Simple!

Any decision you take regarding money management during retirement should be easy enough for your spouse to understand as well. Your spouse should not have any difficulty managing the retirement corpus if you are not around. This point is especially important for men, since there is a good chance that your wife may not only outlive you, but she may also be younger than you. Thus, it’s very important to ensure that she can manage your retirement corpus single handedly. Retirement is not an individual decision and so one must ensure that both the partners are involved throughout the process. The simpler your retirement plan is, the better.

I hope you now have a basic framework to begin with and know the various areas you need to address as you embark on making a good retirement plan!