Personal Finance Planning and Management in your Fifty's and Retirement

Planning Finance After 50 – Why Repayment Of Debt Early Is Important

   Usually, most of us, borrow money or take loan to meet our Urgent needs, which may not be possible to procure with our own savings or the money available with us at that time. This loan/ Debt is used by many corporations and individuals, as a method of making large purchases they could not afford under normal circumstances.

What Is A DEBT : —

  A Debt or loan can be something, usually money, owed by one party

( The borrower or debtor ), to a second party ( the lender or creditor). Debt is a deferred payment , or a series of payments, that is owed in the future, which is what differentiates it from an immediate purchase.

     Debt is a double -edged sword. Borrow wisely and you may create the opportunity to build equity – for instance in a house, or may be even in yourself, with an education. But rack up too much Debt, and financial distress could be around the corner. Like many Americans, who own a home were able to do so, thanks to a mortgage. Many college Graduates got their degree thanks to a student loan.

       But too much Debt can lead to financial distress and may lead to foreclosure on your home or repossession of your car and may result in low credit score, which can lead to high interest rates and difficulty in borrowing in future.

       So, to avoid bogged down by Debt, know the details of your income and expenses before borrowing. Think carefully about how much Debt your monthly budget can reasonably accommodate.

Types Of DEBT : —

         There may be many different types of consumer Debts. The most common Debt can be :-

      — Credit Card Debts

      — Student Loan Debt

      — Personal Loans/ Debts

    — Auto Loans

   — Medical Debts

   — Utility Bills, Bank Overdraft Charges etc.

   — Home Loan/ Mortgage Debt etc., to name a few.

 Which Debt Should Be Paid Off First : —

      Cut down the credit card or ditch the student plan ? Knock off the house equity line or get a jump in the car loan ? Paying off money you owe is always better- but ditching some Debts will benefit you far more than erasing others. The Debts can be categorized as “ Good Debts” and “ Bad Debts “.

   GOOD Debts : — Money you borrow for a home or an education is considered “ Good Debt “. Some home and student loan/ Debts may be Tax- deductible. There is no need to put pressure on yourself to repay these loans as long as you can continue making regular installment payments. But these are also to be cleared before your retirement, better in your 50’s. And not carry them farther.

   BAD Debts : —   These include anything that doesn’t improve your financial position and that you can’t pay far in full within a month or two. Bad Debt is usually in the form of credit cards Debt or a personal bank loan. You should tackle Bad debt first.

How To Get Out Of Debt Of Your Own : —

        It is always advisable to get out of Debt/ loan at the earliest. The Bad Debts must be paid off by the age of 50- 55 years and all other loans,

including home loan, should be re-payed before you retire so that your retirement life is comfortable. To get out of Debt/ loans of your own and that too fast, the following Important steps will be of great help ; —

1 You must confront your Debt by calculating your Debt ratio. Debt ratio can be defined as the amount of total Debt ( excluding mortgages- which is considered a Good Debt as its payment is tax deductible ) as a percentage of gross annual income.

Example – You earn $50,000 a year and you have $25,000 in debt; your Debt Ratio = 0.50

Example –  You earn $100,000 a year and have $250,000 in Debt; your Debt Ratio = 2.50

2.Permanently change the behavior that got you into Debt

3. You must make enough money to repay the Debt.

Follow These Easy Steps To Set Up A Debt Repayment Plan : —

       To repay the loan early and that too with your own resources, the plan should consist of the following steps : —

1. Make a list of your Debts. First, you need to make a list of all your loans and borrowings, whether good or Bad..
2. Rank your Debts. This is based on the rate of Interest  the Debt carries.
3. Find extra money to pay your Debts. In this regard your monthly Budget would be of great help.
4. Focus on One Debt at a time. The highest interest carrying loan/ Debt must be paid First.
5. Move on to the Next Debt on your list. Bad Debt must be cleared First
6. Build up your Savings. This is required to repay the Debt of your own, with your own resources.

   Rank your Debts and Prioritize Their Repayment : —

        From a financial perspective, it’s smart to pay off your highest rate Bad Debt first. For example, putting $500 towards a $3,000 credit card bill with an 18 percent interest rate will save you far more than paying off a $500 bill at 6 percent.

          Further, if you’re planning to buy a home or a car in the near future, it may be worth paying down any credit cards that are  near their credit limits as it will have a positive impact on your Credit Score and may qualify you for lower interest rates.

   Conclusions : —

   Regardless of how you deal with paying off your Debts, you’re in real danger of falling back into old habits. It becomes a chronic problem with some, that starts to interfere with other aspects of their lives and can lead to problems at work and with family and friends. It is always better and advisable to resist the temptation of making the purchasing on credit, especially of utility articles which are not that Urgent. Further, never buy anything on credit that depreciates in value like meals out, clothing, furniture and even cars. Borrow money only for sound investments- education, real estate, or your own business etc.

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Limited savings but numerous responsibilities. That’s the life. But some of these responsibilities will run parallel to each other. For example, at the age 50 years or so, while you can’t delay saving for your retirement, you can’t afford to ignore our child’s future either, may be his/ her college education or the impending marriage. Further at this phase of your life, you don’t want financial mistakes to derail your retirement game plan. But these financial dilemmas and the responsibilities change during the different stages of life and accordingly the financial priorities also change. To restrict ourselves to the life after 50s, the financial dilemmas can be : —

50s : Child’s Higher Education And Retirement : —

         The deadlines of these two big goals may collide. While neither can be ignored, financial planners say that your retirement corpus is the Priority. Your child can get a scholarship or take a loan. However, the bank won’t extend you a credit because you don’t have sufficient savings post retirement. Even if they do, a personal loan will always be costlier than the education loan.

        “ An education loan creates a sense of financial responsibility in the child; allows you to keep your assets and gives you additional tax benefits”Some may also argue it is better to work longer and save more than depend on an educational loan. But it all depends on your health and other circumstances.

 60s : How And Where To Keep Your Kitty : —

        At this age, this is the big financial dilemma. Your financial resources are getting limited and you have to meet responsibilities after meeting the adverse effect of Inflation and various taxes( federal and state ). So, you may keep moving your investments earmarked for retirement towards debt fund as you near 60s. However, that should not stop you from re-investing your kitty in equity options. Considering they are your best chances to beat inflation, most experts recommend keeping a portion of the nest egg in equities. Depending on your Risk taking capacity and availability of fund, you can invest 15- 25 percent in equities to beat inflation and tax liabilities.

Important Money Moves : —

     To manage your finances and savings as well as plan for your future post retirement is very important at the age of 50 years or so. If you’ve been procrastinating on money matters so far, now is the take- control moment for you and your finances. Some of these financial moves or steps which would help you to keep your next years of life financially sound are as under : —

1 Speed Up Paying Down Debt/ Loan :–

    Repaying of your debt, especially high interest carrying loans or debts like credit card balances, car loans etc. has been emphasized repeatedly in my earlier posts. You don’t want to be dealing with mounds of debt as you work those last few years before retirement. Calculate your current debt load and start paying off larger debts as soon as you can. This includes any includes any car loan, large credit card balances , personal loans and mortgages, that you’ve been carrying around for a while. Most retirees who own their homes free and clear will tell you living without a mortgage is financially liberating. The higher the interest rate, the stronger argument for paying the debt off sooner.

2  Look At Your Life Insurance : —

     The American Council of Life Insurers recommends having life Insurance coverage of seven to ten times your salary. But this is a broad rule of thumb. Actually your life insurance coverage depends on your own individual financial needs which may vary greatly based on various factors like : —

 _ The amount of Debt/ Loan you would want paid off

 _ How much money you’d want to leave for your dependents

 _ Any other financial commitment .

    But the need for life insurance doesn’t end when you attain the age of retirement/ superannuation.

 3 Long – Term Care Coverage : —

       Buying long term care while you’re healthy is way easier at age 50 than, say, at age 70 or 75 years. For example , a man or woman buying a long term care policy at age 50 could pay an annual premium of $3,302. But delaying the purchase for a decade would cost the same person $6,678 annually which would become $17,760 annually if you buy at the age 70 years. As with life insurance, long term care coverage can vary greatly based on where you live, family history and  the duration of the coverage.

4 Don’t Put All The Eggs In One Basket : —

        At this phase of your life, you don’t want financial mistakes and which are related to your Investments– to derail your retirement game plan. Better diversify your portfolio. Make sure you’re not investing all of your savings in just a single account or investment vehicle.

  If you have investments, review them now- or have a money manager do it- to make sure you have a truly diversified portfolio. After age 50, you also want to reap the greatest possible return from your investments as these may be your highest income earning years and the time when you have the most potential to stock away money.

             Ahead of retirement, the goal is to start adjusting your investment risk a bit, while maintaining the opportunity for steady growth in the upcoming years. As you get closer to retirement, the diversification of your portfolio becomes even more important. So, having the right mix of stocks, bonds and cash is essential. In this regard, the investment professionals offered general rule of thumb like “ Take the number 100 and subtract your age” . The remaining number would suggest how much of your portfolio should be invested in stocks.

 5 Finalize Your Will, NOW : —

 It is time to create or update your last Will. This can be done in many ways _Pay a lawyer to create a Will.

_ Use Online software like Legalzoom.com or Nolo.com

_ Use store- bought forms that contain pre-printed Wills.

    Unfortunately, nearly half of all the Americans over the age of 50 don’t have a basic Will, according to various survey reports.

   CONCLUSION  : —

Getting the help of a financial professional can get you on the right track and help ensure that you take care of these essential financial tasks. But we must not delay to plan our finances any further. Having sufficient Insurance coverage, both Life as well as Medical, is of utmost importance.

      

 

As mentioned in the earlier posts, everyone of us wants to own a home; his/ her dream home. Whether to Buy a house, which costs a very heavy amount Or to rent a house is a matter of personal perception and financial affordability. People are having different views and their own reasoning for and against this issue. But having your own home is definitely has lot many advantages, especially it gives a sense of security and a sense of pride to the owner. It also gives a sense of achievement as well as belongingness. In the long run, owning or buying a house may even cost less than renting. Therefore, in the advanced age, especially when you are nearing retirement, say about a decade away from that D-day, one must try to buy a house, if he has not done so far.

    Financing Your Home : –

After you have considered all the relevant points like your financial health, figure out your timeline and compare the renting costs to owning costs, you need to confront the tough task of arranging the finance for your home. Buying a home is a huge investment, probably the most significant purchase of your life. It’s not something you should do without preparation. Before you start on the road to home ownership, make sure you are ready. (Pl. refer Points for consideration in my last post on Real Estate). Some of the important steps, you must take, before you buy a house, are given below : –

 Some Simple Steps To Buying A House : –

  Step 1 – Improve Your Credit Score : –  A score of 700 to 720 will get you a good deal, and 750 and above will garner the best rates on the market. Better stop applying for new credit a year before you apply for a mortgage.

 Step 2 : – Figure Out What You Can Afford : -For conventional loans, home expenses should not exceed 28 percent of your gross monthly income and for FHA loan, this limit is 31 percent.

 Step 3 : –  Save for Down Payment, closing Costs : – Normally, the down payment terms vary between 3 to 20 percent of your loan amount. Your credit score and loan terms help determine how much you’ll need to make the down payment.

 Step 4 : –  Build a Healthy Savings Account : –  Building up your savings not just for your home, is very important. That money will also help pay for maintenance and repairs of the home.

 Step 5 : –  Get Pre-approved For A Mortgage ; –  Before you start house shopping, you should get your financing in place. Better have everything in order. You should get a mortgage pre-approval, before you buy your house

 Step 6 : –  Buy A House You Like : –  To get a house that will make you happy, don’t count on a quick purchase. Step back and make certain the house you’re considering is one that will fit the needs of you and your family..

    Different Options For Home Financing ; –

  For financing the home, most of the people depend on Debt (unless you are independently wealthy). A mortgage loan from a bank or other sources makes up the difference between the amount of Down payment, you intend to make and the agreed upon price of the house.

    There are Two major types of mortgages : –

1 Fixed Rate Mortgage : —  This has interest rates that never ,ever changes and are usually issued for a 15 to 30 years period. The interest rate you pay the first month is the same rate you pay the last month. With a fixed rate mortgage, your monthly mortgage expenses is certain.

2 Adjustable- Rate Mortgage (ARM) : –  It carries an interest rate that varies over time. Thus, your monthly payment fluctuates. But the attraction of ARMs is the potential interest savings, when the interest rate drops. But when the rates rise and stay elevated, the adjustable loan can cost you more than a fixed-rate loan.

  Choosing Between Fixed And Adjustable Rates ; —

Before deciding which kind of mortgage– Fixed or Adjustable– you must consider the following : –

1. How willing and able are you to take on financial risk ?

2 How long do you plan to keep the mortgage?. With a duration of 15 to 30 years, Fixed interest rate may be better.

   HYBRID Loan : –  This combine features of both the Fixed -and- Adjustable rate mortgages. For example, the initial rate may hold constant for a period of three to five years- and then adjust once a year or every six months thereafter.

    Find Funds To Boost your Down- Payment : —

Many cities and states offer Down payment Assistance (DAP) for first- time home buyers. These programs can offer money as much as $75,000 to go toward your down payment. But some restrictions and conditions are imposed (you may check the details)

  Understanding Other Lender Fees : —

Lenders, generally charge other up- front fees when processing your loan. You need to know these charges and compare different mortgages and determine how much completing your home purchase is going to cost you.

1 Application And Processing Fees  : –  Most lenders charge several hundred dollars to complete your paperwork and to process it.

2 Credit Report : –  Many lenders charge a fee (about $50 to $75) for obtaining a copy of your credit report.

3 Appraisals : –  For most residential properties, the appraisal cost is typically several hundred dollars.

4 Title And Escrow Charges : –  These are also charged by the lenders in addition to other fees/ charges.

  Beware Of Prepayment Penalties ; –

Avoid loans with prepayment penalties, You pay this charge, usually 2 to 3 percent of the loan amount, when you pay off your loan before you’re supposed to. The only way to know whether a loan has a prepayment penalty is to ask. If the answer is Yes, find yourself another mortgage.

 Avoiding The Down- payment Problems : –

You can generally qualify for the most favourable mortgage terms by making a down-payment of at least 20 percent of the purchase price. This will save money on interest. But many people don’t have this amount ti make down payment of 20 percent or more. In such case, the following steps will help : –

1 Go on a spending diet. Cut back on your spending.

2 Consider lower priced properties, requiring less down- payment.

3 Find partners- buy building in partnership.

4 Seek reduced down-payment financing. But have solid credit to qualify for such loans.

5 Get assistance from family. You can pay them an interest.

After my speaking to various people across the different age and income groups, it appears that most of us don’t understand the difference between saving money and investing money. We forget this, may be due to ignorance or due to callousness. We generally ignore the effect of of a nine letter important word- INFLATION on our savings with time, especially when we calculate  our requirements for future specifically after retirement. We assume the money value of our savings Static, which results into many difficulties, when we face the real situation. Even a moderate inflation of 4 percent per year can reduce the purchase value of money by 50 percent in approx. 18 years down the line. Monthly expenditure of say $5,000 p.m. would be more than $10,000 p.m. after 18 years, assuming other conditions remain the same.

WHY Investment :–

In view of above and to increase the value of your savings, the money must be invested in such a way that our gross return must be more than the combined effect of the annual inflation rate ( say 4 percent) and the Federal/ state “income tax rate (at present 30% ). Your ” money must generate more  money” which is the fundamental of investment.

Investment program is essential for achieving a comfortable standard -of- living during a typical retirement period of 20 years or so. This must be planned from the early stages of our career, but it is very important to have a closer look on our savings and investments at the age of 50 years, still a decade away from the retirement. Further, this is also essential for accumulating sufficient assets for the college education and thereafter, marriage of your growing children.

WHAT is Investing Money:–

   It is the process of using your money or capital, to buy an asset that has a good probability of generating a safe and acceptable rate of return over time, making you wealthier, even for years. In general terms, the best investments tend to be so-called productive assets such as stocks, bonds, mutual funds, real estate, gold and antiques etc.

A long term investment program increases the value , by significant amount, of your invested money over a period of say five or more years after the adjustment for inflation and income tax etc.

Major Investment Instruments ;–

Investment especially at the age of 50 years or so, is dependent on a number of factors like ;

— Time horizon to invest the money.

— Your RISK appetite like aggressive, moderate, conservative etc.

__ Your Health condition

__ Your Financial goals –short term and long term

__ Your liabilities and Debt status.

The following are the Major investment vehicles :

1.    Real estate or Immovable Property

2.  Equity or common Stock

3. Mutual Funds

4. Gold or other collectibles like antiques etc.  and

5.  Bank C Ds/ F Ds and bonds

Real estate or Immovable Property ; –

– Investment is for long period.

– Amount required in sufficiently High.

– The money requirement may not be Urgent as the disposal of property takes a longer time.

– Although the market can be volatile, but over a longer period, the investment generally gives good return on investment.

Equity or common stocks :-

-It requires quite a deep knowledge of the stock market.

– Investment depends on your Risk taking capacity.

– Investment should be for long-term to avail tax benefits on return

– In view of high level of volatility, not advisable for the people in their 50s, to invest their full savings in the stock market.

Mutual Funds :–

– the people with less knowledge of stock market can invest in Mutual funds.

-The safest way to create wealth.

-You can expect better return than your bank.

Gold or collectibles like antiques ;-

– considered to be quite safe investment for conservative investors

-Very useful in case of emergency or other urgent needs as disposal is easy

-The return even on long term has been moderate, of late.

-Can be purchased in physical form as well as thro’ gold bonds/ paper form

Bank C Ds/ F Ds or Bonds:--Although the returns on these investments are comparatively moderate and the tax benefit is also not available, but it is very safe mode of investment for keeping your emergency funds as the money is easily available, when required. The people in fifty’s must keep about 15-20 percent of their savings in these instruments.

Keeping the above factors in view, the people who are 50 years or above should invest in a mix of stocks, Mutual funds and bank C Ds/ F Ds etc in 50:50 ratio of investment.

CONCLUSION :–

Whatever type of Investment vehicle you choose, but it is advisable to stay in touch with your money. Have a periodic look on your portfolio and the return you get. You must re-balance your portfolio, if the returns  are not as per your logical expectations. Have a closer look on the reports which you get periodically about your investment. If required, you may take the help of a financial professional or adviser to guide you regarding your investment.

I would discuss investments in Stocks and Mutual funds, in detail, in the coming posts

 

 

 

 

 

After you start to seriously think about retirement  by the time we are in our 50s, and we have worked our Net  worth or our Assets and our Liabilities, after retirement- maintaining an income stream that will last for the rest of our life is more difficult now than it used to be. In the past, the average retiree generally lived for 10 to 12 years after retirement and coping with Inflation was not a big deal. But now, the average life after retirement is much longer, so you have to plan for at least 30 years of retirement income. Further,  your buying capacity would also be reduced drastically due to higher affect of Inflation. A moderate inflation rate of 4 percent can reduce your buying power by 50 percent in 18 years time.

How and Where to Invest Money :–

So, you must prepare yourself, financially, to withstand these adverse situations. You must ensure that your savings are adequate and these are properly invested so that you get handsome returns even after beating the Inflation. For retirees, making the best use of their retirement corpus as well as managing their savings, that would keep Tax liability at bay and provide a regular stream of income is of prime importance. Further, when you’re younger, the money can be invested in high risk portfolio, as if ,one loses 20-25 percent, there is sufficient time available to recover. But this is not possible at the advanced age of late fiftys or in 60s.

As an investor , especially when you are in your 50s, you shouldn’t over estimate your ability to handle downturns, so better invest your money conservatively depending on your risk taking ability and the time span available with you for the investment. Your portfolio has to constructed in a way that will allow you to hold on through thick and thin, with comfort and without any undue stress.

Further, investing like a pro is complicated. There are ways to simplify the process. For this purpose, if required, seeking professional advice is probably the best alternative available for choosing the best way of investing your hard earned money. But if you want to invest of your own, it is better that you have some knowledge about the various options available in the financial market.

Understand Investment Risk :–

As investor, we understand that the potential for higher returns generally comes with higher risk. Stock portfolios tend to have higher highs and lower lows than bonds or bank C D/ F D. So, one has to be realistic with their expectations; a return of 14- 15 percent, as being propagated for stock markets and by some mutual fund advisers may turn out to be a myth. So, a return of about 9 percent from our investment portfolio appears to be realistic in the present time. For this purpose, we must invest in a mix of stocks, mutual fund and low income but less volatile instruments like Bonds or C D/F D. The split of our investment depends upon your age, risk taking capacity, your liabilities and your health. But in the 60 s of your age, 50: 50 ratio of investment in stocks/ Mutual fund and Bank C D/ bonds is suggested.

Build Your Portfolio :–

If you avoid stocks, thinking about the high level of volatility, you may eliminate market risk but at the same time ,you are taking on the very real risk that your money would lose considerable value after Inflation. So, for long- term, moderately conservative individuals, the following portfolio is suggested  :–

30 -35 %                              Large cap equit

15 – 20 %                              small & mid cap equity

35 – 40 %                             Fixed income instruments

10 – 15 %                              Cash investment

Keep Some Cash :–

In general we think of cash as the money we keep in our savings or checking accounts. Cash can also include short- term and relatively safe investments like treasury bills or  bonds, where the money is easily available in case of requirement.

CONCLUSION  :—

Investing doesn’t stop with building your portfolio. It is important to periodically assess your portfolio’s performance so as to ensure that you are staying on the right track. Based on this review, you can re-balance your portfolio. Re-balancing also provides the discipline to fight your own emotions and apprehensions.

In the present day scenario where so much emphasis is being given on appropriate financial Management from the early stages of the career, it is easy to feel stressed by the time you turn 50 and especially, if you have not planned your finances and investments for your post retirement life. While it may still be a solid decade away but it’s closer to reality than ever before. At  age 50 ,it is a prime time in your life- a period when you are probably earning more money than you earlier did in your career, which gives you more flexibility, but at the same time, there are other very important issues like you’re facing college tuition bills of your children, or high expected expenditure on their wedding in the near future etc. This is a period when you have a chance to emerge from debt and start to see your investments make a serious contribution to your Net Worth.

Check List Of Personal Finance at 50 ;–

Although there are many general points which you must consider to manage your finances at all stages of your career like;

___ Make a budget about your Income and spending

___ Track your expenses

___ Put down your Debt especially high interest carrying credit cards etc.,

BUT ,it becomes imperative to have a checklist for all our Personal finances specifically when you are in the age of 50- 55 years. Some of these points which you should consider are as under :–

1.    Shift More Heavily from Borrowing to Saving :–

It is expected that by the time you reach your age 50 years or so,you should have greatly reduced your debt and loan burden. Now, you must consider ways and means to grow your portfolio of retirement assets. The more you repay your debt especially high interest rate carrying credit cards balance, car loan etc, the more your monthly budget can go to savings rather than loan repayment.

2.   Start Developing a retirement Plan ;–

At the age Fifty years or so, it is the right time to start making a retirement plan, although your retirement may still be a decade away. Furthermore, now’s a good time to review your savings and see if you are on right track to retire within the time frame you’re thinking about. There is no particular savings numbers to aim for, but try to do your best to estimate your living expenses in retirement. Then follow the 4 percent rule (the expected rate of annual inflation ) to find your anticipated annual expenses and subtract from your annual income  and then multiply the difference by 25 (100/ 4) to see how much savings you’ll need e.g. if the difference is approx. $20,000 a year then you will need $ 500,000 in the savings (20,000 * 25 ) .

3.  Re-assess Your Retirement Goals :–

You might have planned some long term goals in the past. some of those may still be pending. Now is the time to revisit all your goals, re-assess them, and plan them with a proper time frame, including when to retire and what kind of lifestyle you expect after retirement.

4.  Catch-up Retirement Saving Opportunities :–

              As per the statistics available through various surveys, about 30 percent of workers at 55 years of age and over don’t have much amount saved for retirement. But don’t worry, the government gives some catch up opportunities in the form of additional tax deferred retirement contributions. Anyone 50 years or older can put up to $24,000 a year into a 401(k)  and $6,500 a yer into IRA.

5.  Keep Your Asset Allocation Aggressive :–

At the age of fifty, it is still not late for investing in growth oriented instruments as you  still  have an investment time horizon of some 30 years or so. It is suggested that you follow 50:50 rule of investment i.e. about 50 percent in equity related investments and balance 50 percent in low income but more safe and conservative instruments like bank C Ds/ F Ds or debt plans. Further, if you are contributing heavily to your retirement plans, this positive cash flow will help smooth out some of the volatility of the stock market.

6.  Update Your WILL :–

By the time you turn fifty, it is the time to have a close look on your will keeping in view your Net worth, and the attitude and approach of your children ,who are on the verge of adulthood and other family members. So, decide what provisions you’ve to make for your survivors.

CONCLUSIONS :–

with proper attention to your finances, this could be your greatest decade for wealth building and financial management. further, you try to have complete knowledge of the “social security plans” as there may be some ways by which you may be able to maximize your social security benefits. however, this is the time for action and not procrastination and if you follow some of the points mentioned above, you could retire confidently with the peace in mind ,without undue stress.

The journey from working life to a retired life is quite difficult- both emotionally as well as financially, but it is inevitable in the life of a working person. This may be a full retirement or partial retirement say you start doing some part time job or it can be an intermittent retirement, but the bigger challenge is being able to see our future selves. In the early stages of our career and even in the 40s, most of us don’t think seriously about retirement. It isn’t until  about age of 45 or 50 years that the impending reality of retirement hits home. And then we get a little stressed about our financial position.

In such a thinking you are not alone. Various surveys conducted by some of the NGOs and other agencies like Employee Benefit Research Institute (EBRI) said that many of the people have very less saving and had not planned for their retirement even up to the age of 50 or so.

This fact does not make your situation any brighter, but getting stressed  or worked up for this delay is also not going to help in any ways. It is better to get motivated to move ahead and make your retirement plan seriously without any further delay. There are a number of actions you can take to make up for the lost time. Much of it gets back to the old- fashioned advise of spending less and saving more and it works.

Some practical steps which  may help you in this regard are as under :–

Few Important Steps :–

1. Make a Budget :- As I have repeatedly impressed, prepare a Realistic Budget. I would underline the word Realistic. This is the time for complete honesty about your financial status. Write down factually about your Earning from all sources & Expenses. Divide your expenses into two categories such as

(i) Non-discretionary–like Mortgage, Rent, Groceries, Transport, Insurance Premiums, Taxes, Debt payments and loans, if any.

(ii) Discretionary –like Restaurants, Entertainment, Travel, even Clothing etc.

Track your spending for at least two months, may be even more and compare it with your projections or budgeted amount. Now adjust your budget so that you can reduce your expenses to the maximum and correspondingly increase your savings. For this purpose, online budget tools, will make it easier to see precisely where your money is going and where you can make change

2.   Get Out of DEBT :– If you are carrying debt like credit card balance, try to eliminate them quickly. These debts are carrying very high rate of interest say 15 percent and this becomes very big amount over a period as some of us pay only the minimum amount against our credit card. Those interest charges are actually increasing your debt. Paying that full amount quickly will save us extra 15 percent- money which can add to our savings. Similarly, the car loan is also very expensive as the interest rate charged is quite high. This loan should also be paid at the earliest.

After paying these high interest rate loan or debt, you must try to repay the mortgage debt especially before retirement, so that full amount of pension and social security is available to you.

3.  Contribute Maximum Amount to Pension & Retirement Fund :–

Retirement accounts offer significant Tax advantages and the money gets compound tax-deferred , leading to potentially faster growth. So, contribute regularly to the retirement accounts; the earlier you start, the better it is. Further, the employer’s contribution to the fund would also increase, if you pay maximum permissible amount towards this regularly. This amount when you get after retirement, would be a big help. Further, this will increase your social security amount also.

4.   Develop an Investment Plan :–

Our savings or money should grow more money with time. That can be achieved by putting your money to work by investing. Think about these factors:

(i)   How much time you have to keep your money growing.

(ii)  How  much risk you are comfortable with.

Depending on these facts, you can invest your money with a combination of stocks, bonds and bank CDs or FDs. Mutual Fund can also be thought for investment purpose.

As you would like to protect your money from the market volatility, especially when you are in your 50s and there is hardly any time to take any risk with your hard earned money, it is important to balance your investment portfolio.

Conclusion :—

It is best if we can plan for our retirement from the start of our career. A small saving at that time can become a big kitty by the time we retire due to the magic of Compounding.

But, if you are starting your investment journey in your fiftys or later, it is still not very late. Though the investments now will require a different thinking and strategy. It is also advisable to involve your spouse and grown up children while planning your budget. This will avoid a lot of family problems and misunderstandings in future. Also, a family owned budget will have a backing from everyone in the family and it’s implementation will be much more smooth.

One of the most common questions that people especially in their Fifty ask  is “How much should I save to live a comfortable Retired life?”

I believe this is a very reasonable and sound question  to have a clear financial target in mind so that you can have realistic  financial plan.

Retirement Planning has different meaning for different people. While some “Retire” in the traditional sense of the word, but the majority of us continue to work in some capacity, whether or not we get a paycheck. We are active, involved and full of things we want to do for ourselves and for others. So, of late, people have started using a term “superannuation’ and not “Retired”.

Retirement Planning is not only for retired or superannuated, but as we start to contemplate retirement or even partial retirement or early retirement, we choose. Generally this planning should start from the early stages of our career or latest in 30s and must not be ignored or overlooked. The people in fifty-pluses are n enormous and diverse group but most of us face common issues around planning, saving, investing, insurance, social security, health care, estate planning, caring for our loved ones etc.

How Much Money Is Enough :-–

This is a very difficult issue as our requirements differ- depending upon our health conditions, our liabilities, our assets, and our Net worth,our debt, our mortgage, and most of us may not have precise answer now. Actually, after retirement,  our financial requirements depends on the following:–

__ what you expect to spend  each year

__ How much money you will need in your portfolio to support that spending.

__ How much more you have to save to get there.

What  You Are Likely to Spend

There is a general perception that our expenses reduce after retirement as our commitments will be much less. The expenses on children’s higher education will not be there. Similarly, big budget spending on marriage of children, purchase of house (if you have already repaid the mortgage amount)  will be over. But at the same time our expenses on health care, medical insurance and servants or care takers will increase. Further, it also depends on the life style which we want to adopt after retirement or superannuation.

The opinions differ. Based on the statistics, retired households spend about 80-85 percent of what working households spend and most of that goes to home-related and health costs.

Regardless, when you contemplate your own retirement, it’s best to get specific. Do a sample budget. List projected non discretionary expenses- such as housing, every day living, health care, insurance and taxes. Then add in projected discretionary expenses- such as travel, and other family expenses on functions and entertainment. It is assumed that you will pay all the debt and mortgage before retirement.

Living Expenses In retirement

What may GO UP                                                         What may GO DOWN

Health care                                                                          work related expenses

Entertainment and other activities                         Taxes on Income/ salary

Travel                                                                                        Savings

Property Tax                                                                          Debt and Mortgage

Then Calculate How Much you Need in Savings

First add up all the Income you can rely on from all the sources i.e. Pension, real estate, social security etc. Your savings will have to make up the difference between this total income and the amount you want to spend.

Let us say, this difference comes to $800/-p.m i.e approx. $10,000/-per year. If we assume that the R O I (Return on investment) is 4 percent per year,then a portfolio of $ 250,000/- in various investments would be required, which must be planned from the initial stages of our career. It’d be great if you could invest the money in a way that would let you live off the investment income without touching the principal amount, but for many it may not be possible and they may have to slowly spend the principal as well,i.e. drawing down your account.

Conclusion :–

The retirement or superannuation in the working life of an individual is inevitable and as we start to contemplate retirement, we must plan for our financial needs and start saving and investing properly so as to have a satisfying and comfortable retired life meeting our expectations and commitments.