I used to interact with many people across different sections of society who comes to us for personal financial advice. It’s a question that remains dominant in the interaction.
Reached 40, but not planned for retirement. What to do?
My immediate answer is “It might not be too late if you start now.”
If you have not yet planned for your retirement, it is still not too late at 40. There are several steps you could take to plan your financed.
By this age, retirement is not a distant reality; it is in your face. This is when one actually needs to wake up and get one’s finances in place as you are in that age bracket where you may outlive your money.
This is when one needs to re-look at whether one will be able to sustain one’s current lifestyle after retirement or not. The bright side is that most of you are at the peak of your careers and earning well and I will assume that you are through with your housing EMIs or will be in a few years.
At this stage, the first priority should be retirement planning for oneself and then one should evaluate expenses like those for child’s education and marriage.
In my opinion, have a plan in place before you start investing. Also, start tuning yourself to change your lifestyle if you feel you will not able to stash away enough money before your retire.
Since retirement is still a good 15-20 years away, use equity to save your own retirement as equity has the capability to increase your corpus substantially. While SIPs (Systematic Investment Plans) in equity mutual fund is the most convenient and advisable way to invest in equity market, direct investments in equities (stocks) can be considered if one has the preference.
Priority should be given to tax saving instruments at this stage in one’s life. If the child’s education expenses or marriage is less than five years, then one should not use equity at all. This is because just as equity has the capability to increase the corpus, it is also very risky and five years is not a long enough time in the equity market. Instead, debt mutual funds can be used for this purpose. Also, if the individual is saving for his child’s education abroad, then one can look at foreign currency investment assets.
However if child’s education or marriage is 8-10 years away, then the individual can look at investing 60-70% of the corpus in debt and rest in equity.
Term insurance is critical at this stage as many more lives will be dependent on you. Medical Insurance is also important and one can look at taking a family medical cover, as the premiums are more economical than those for individual covers. One should be careful not to over insurance oneself as premiums go up substantially by this age.
So, while planning one’s term cover, take a good case scenario and not the best case scenario while doing the calculation. This means that if your child can have a decent education with Rs. 10 lakh in India and you would like to save Rs. 30 lakh for his education abroad, then while deciding the term cover, keep a provision of Rs. 15 lakh for the education and not Rs. 30 lakh.
One also needs to revisit property cover insurance, as one needs to protect the biggest asset that one has built so far. Property cover comes at a very nominal cost and is often ignored by most house owners.
At this stage, retirement saving should take top priority and one should cut one’s living expenses if one has to, to ensure that there is enough money in your kitty when you retire.
In my opinion, a better approach for people in their 40s is to set a clear retirement saving target. They should know how much money they actually need to have for retirement.
[blockquote style=”1″]“You are never too old to set another goal or to dream a new dream.” ~ C. S. Lewis[/blockquote]
I am a CERTIFIED FINANCIAL PLANNERCM. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do.
If you have a question about your own financial situation please connect with me. I’d be delighted to try to be of service.
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