The idea behind a retirement plan is to offer you financial security so that you can continue to maintain your current lifestyle when your income starts ebbing. You need to plan in advance if you want to retire on your own terms. All you have to do is to take stock of the issues listed below to achieve financial freedom after retirement.

How long do you expect to live?

Thanks to the advances in medicine, longevity is increasing in India. This is the starting point for your retirement plan. While one may never be able to predict exactly how long he/she may live, a good starting point is to have a fair idea of the life expectancy by reviewing your own and your family’s health history. In India, life expectancy at birth is 65.48 years.

Will you run out of money?

Your savings should not run out while you are alive. You need to calculate the corpus amount required for retirement based on when you want to retire, how much you need to spend every month after retiring, inflation, tax, investment returns and the like.

There are two reasons why you may run out of money: Inflation and medical expenses.

Inflation in healthcare is around 18-20 per cent every year. So, you need to be very careful in factoring in inflation while planning for retirement. Also, you need to be sufficiently covered with health insurance.

Retirement corpus

You need to divide your retirement corpus into two parts. One part of the corpus will be required to retire at the normal age, that is 58-60. The other part should be set apart in case you want to retire early.

This will help you determine that should you want to retire at 50, what will be the corpus required to live between the age of 50 and the regular retirement age of 58 or 60.

First, you need to accumulate money for your regular retirement. You then need to proceed towards accumulating funds for early retirement. This way you break your targets and it gives you psychological comfort to know that even if you are forced to retire early, say for health reasons or family circumstance, there is no reason to worry since you have factored in early retirement in your financial plan.

Don’t fall for the ‘get rich quick’ schemes

You sure need a sizable corpus for a comfortable retired life. But do not fall prey to ‘get rich quick’ schemes because higher returns go hand in hand with higher risk that you cannot afford as you near retirement. Protection of capital is the name of the retirement game.

Don’t fear the market

Your portfolio should contain different asset classes. By investing in a diversified equity portfolio you take a calculated, not blind risk. Equities beat all other asset classes in the long run, so investing in retirement-specific Ulips can be an option for those who want to retire early. The other advantage of saving for retirement through life insurance policies is that it provides protection and takes care of your spouse’s need in your absence. Moreover, the plans which allow indexation address the consumers’ inflation concern.

Evaluate your annual cash requirements

The monthly income required after retirement will be an important criteria for deciding the retirement corpus. If you are not comfortable with spending less, you need to be careful while drawing a budget for cash requirement after retirement.

Find what will give you safe and systematic returns

Planning for retirement is a long-term need. Look for avenues that will give you the best value in terms of safety, security and returns on your portfolio without increasing the risk. At the same time, protection needs should not be overlooked.

Look for instruments which are self sustaining and will suffice for the goal that you are planning, even in your absence.

Cut your current spending to save more

Money not spent is money saved. Spend less, save more, invest smarter and retire richer. There are a number of ways to spend in a smarter way to save more.

Earn more now

Time is money. Don’t waste your time; instead invest it in revenue generating activities. Apart from your regular income, there are other opportunities that you can exploit to earn the extra buck. There will be numerous opportunities based on your knowledge and skills.

Take advantage of tax-deferred opportunities

Tax deferment is an important tool for early retirement. Tax deferment means paying less tax now. If you pay less tax, you have more money to save. You need to pay tax on FDs on maturity even if you renew them. In life insurance, one-third of your maturity corpus is tax-free and the balance can be invested in annuities, which are taxable.

Find out some ways to have an income after retirement

Even after retirement you can have an income by way of a hobby or interest. You need not work on a regular schedule. You can be a trainer, a blogger, a consultant, or an adviser in your chosen field to generate additional income and also keep yourself engaged after retirement. If you are able to generate this kind of income, you can retire early.

To retire early, you need to have a sound financial plan. Professional assistance from a financial planner is always useful if you desire to retire sooner and retire richer.

The author is director and head of products and persistency management,