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Are you retirement-ready?

Adjust the estimated value of your retirement portfolio at a pre-defined frequency

Are you nearing retirement or aiming for an early retirement? If so, are you retirement-ready? In this article, we discuss why it is important for you to address your emotional readiness in addition to your financial readiness for a comfortable retirement.

Financial readiness

Retirement planning typically refers to determining the amount you require at retirement to lead a comfortable living post-retirement. This requires you to assume a life expectancy — number of years an individual is likely to live. In addition, you have to estimate your monthly expenses to maintain your desired standard of living and the rate of inflation through your working life and into retirement.

Needless to say, any or all these variables can change adversely during your working life. And that means you could fall short of accumulating enough money at retirement to lead your desired lifestyle post-retirement. To reduce this risk, you have to adjust the estimated value of your retirement portfolio at some pre-defined frequency. Suppose you determine at age 35 that you need five crore when you retire at 60. You have to revise this estimate, preferably, every three-five years till you reach age 45, and then review this number every year till age 60 for significant changes in the input variables. All this to stay on course and get yourself financially ready for your retirement. And this is the relatively easy part of retirement planning!

Emotional readiness

Your physical health is a function of your emotional well-being. And your emotional well-being depends on the quality of your retired life. You are productively engaged all through your working life. After retirement, you have no formal work and only leisure. For those who are not emotionally-ready for retirement, a typical retired life would involve watching television and taking care of grandchildren. The issue is that routine is bad for the brain; it leads to rapid cognitive impairment or dementia not to mention other health issues. And that has severe financial consequences.

At the extreme, poor emotional well-being could lead to rising healthcare cost. What if healthcare insurance is not enough cover these rising costs? An individual may then be forced to fund healthcare cost from savings set aside for lifestyle expenses. Needless to say, that could impact the quality of retired life because of poor health and less resources for discretionary expenses. So, unless you plan carefully as to how you want to spend your retired life, just being financially-ready may not be enough.

One way to achieve emotional well-being is to explore leisure activities that can keep you engaged during your retired life. Such activities include gardening, active volunteering and having a strong social group of like-minded people. You should engage in such activities during the last five years of working life to get a perspective on how to engage yourself during your retirement.

Your emotional well-being is even more important if you are aiming for early retirement. Remember, work is not just about earning money, but also about being productively engaged during the day. That is why it is important that you aim for early financial freedom, not early retirement.

Most individuals engage an investment advisor to become financially ready for retirement. However, not many plan for their emotional readiness. You should seek professional counselling during the last five years of your working life to become emotionally ready for retirement, if required.

(The author offers training programmes for individuals for managing their personal investments)

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