5 Retirement Strategies to Keep in Mind as a Late Starter
While living in this highly demanding and fast-paced world, we often get caught up in our day-to-day obligations and almost find no time to think about retirement planning. Many people tend to postpone their investment journeys till the late 40s when they realize they do not have an additional bunce to support them in their golden years.
A stable retirement plan comes in handy for people nearing their retirement age and assures that the investors have a stable passive income to fall back on at any given time. In the absence of a steady and regular income post-retirement, it is important to consider investing in other income sources to help you sustain your current lifestyle.
With a plethora of investment options and schemes available in the market these days, it is never too late to start your investment journey. However, it is extremely important to plan and follow specific retirement strategies for people nearing their retirement age in less than 20 years. Here are 5 retirement strategies that late starters must keep in mind.
Important Retirement Strategies to Help You Keep Up
Set realistic targets and analyze your risk profile
As a late starter, it is important that you set reasonable targets that you can achieve easily over a short span of 10-15 years. Investors must realize that these targets would not be in line with targets they ought to have set in their 20s. Therefore, they should carefully analyze the fund requirements to support them through their golden years. Keeping a reasonable number in mind will help you chart out a better retirement plan.
With less than 15 years to plan for retirement, looking for high passive income options may seem attractive. However, it is best to assess your personal risk appetite and look for stable monthly incomes that are predictable and not majorly affected by external factors.
Take your savings up a notch
Most people tend to increase their expenditures to afford a better lifestyle once they receive an increment in their salaries. Investors must keep in mind to spend judiciously so that they can sustain for 20 years post their retirement. Hence, it is crucial to analyze and recognize unnecessary spending and avoid them.
Postpone your retirement
If you are a late starter and are considering catching-up on your retirement goals, then consider postponing your retirement by a few years, given that you can maintain a healthy and active work life.
Clear all debts
Whether it is a property loan, car loan, external debts, or even your credit card bills, it is ideal to systematically start paying off all forms of debt while you are still earning. This will help you avoid being burdened with debts post-retirement and enjoy your retirement corpus. Paying off debts before leaving the workforce will also enable you to utilize extra savings for investment for your retirement plan.
Invest in adequate insurance
Buying adequate health, car, and life term insurance can help you reduce your risk. Having sufficient health insurance in place is a must as it will protect you from draining your hard-earned money on expensive medical bills. This will enable you to utilize those savings in prospective investment avenues while still saving you and your spouse against any medical emergencies. If you do not already have health insurance, you will have to pay a higher premium.
Investment Plans for Retirement
While choosing an investment scheme, one must make sure that it satisfies their risk profile. It should also help you counter the effects of rising inflation while staying financially independent and, most importantly, help you maintain your standard of living.
Mutual Funds (MFs)
Mutual Funds enable investors to build a diversified portfolio to invest in securities such as stocks and bonds. According to the basic investment principle, one must not put all the eggs in one basket; it is wise to diversify your investment between equity and debt. Equity-backed products have been shown to provide higher inflation-adjusted returns. At the same time, debt mutual funds are another safe option for risk-averse investors. It invests funds into government securities and corporate bonds to deliver steady capital gains on a short-term basis.
The most significant advantage of mutual funds is that it lets you tailor your portfolio according to your needs. Since different investors have different risk-taking capacities, they can accordingly choose combinations of equity and debt that work for them.
Invest in Bonds
Buying a bond means that you loan your money to the government, municipal, or corporation. You earn an interest income for a certain period till the bond matures. After the bond matures, the issuer returns the principal amount to you. Bonds come with quality ratings that allow you to analyze the financial strength of the issuer of the bond. Bonds are available for short-term, mid-term, and long-term, and investors can select how much time they have left before retirement.
Real Estate Investment Options
Investing in real estate helps you diversify your portfolio and mitigate risks. Long-term real estate investment is an excellent retirement plan that protects you from fluctuations in the market. It is backed by a physical asset that appreciates over the years, thereby protecting your financial interests. However, for people who are less than 15 years away from leaving the workforce, real estate provides many short-term investment options. Further, investing in different kinds of properties can also help diversify one’s portfolio.
One of the attractive properties for retirement plans are rental properties. With a rental property, investors earn a steady passive income without selling their physical assets, thereby ensuring a long-term cash flow supported by rental payments. It also provides predictable income that is unlike investing in stocks. More importantly, rental payments again rise with the rise in inflation, therefore, guaranteeing rental payments that match or override inflation.
REITs are another promising option for investment. A real estate investment trust is like a mutual fund that deals explicitly with the real estate market. It involves a team of professionals who manage the properties, collect rent and management fees, pays taxes, and forward the remaining earnings to the investors. Investing in REITs alone can ensure a diversified portfolio in the real estate market, effectively shielding you from risks and earning tremendous profits.
Fixed Bank Deposits (FDs)
Fixed Deposits are also a suitable option to include in a retirement plan. Many banks offer higher interest rates to senior citizens who are considering earning higher interests in the short-term. Banks that provide a higher interest rate for senior citizens is higher than standard, which could range between 3.25% and 8.5% per annum, depending on individual banks. It is a safe investment option used to store emergency funds with the bank and earn higher returns than savings accounts. Fixed Deposits are a great option for people who are unsure which investment options to pursue and can deposit their money with FDs until they can make any other investment decisions.
It is never too late to start planning for one’s retirement. Every earning person should seriously consider retirement planning so that they can remain financially self-sufficient in retirement. When there are many options available, it is only prudent to take advantage of them. It is crucial, especially for late starters, to systematically follow these strategies to compensate for retirement planning delay.
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Frequently Asked Questions on Retirement Strategies for late starters:
Since every investor is different in terms of their risk-taking capacities, age, and income levels, it is beneficial to build a unique portfolio that suits their personal needs. It is advisable to diversify the portfolio by investing in different markets, properties, and schemes to mitigate investment risk. When selecting an investment strategy, make sure that it suits your risk profile. It can also help you cope with the consequences of increasing inflation while remaining financially self-sufficient and, most importantly, maintaining your standard of living.
Real estate is a viable investment as it provides investors with both long-term and short-term options. It is especially suitable for retirement plans as investors can invest in both long-term avenues capable of delivering steady and predictable returns from rental properties or even REITs and short-term options such as fractional ownership.
Real estate for retirement is an investment that has always been a good choice as it can provide both long-term and short-term benefits. However, investors need to keep a few things in mind while considering real estate investing. Investors can also include Fixed deposits in their portfolio as a safe investment option.
Based on their unique set of requirements and risk profiles, investors can choose to invest in various schemes. If the investment’s focus is to generate income in the form of dividends to tackle inflation, then investors must incorporate mutual funds into their portfolio. Additionally, for investors looking to develop a steady and predictable cash flow, they must consider investing in rental properties and FDs.
Fixed bank deposits (FDs) offer attractive interest rates to senior citizens that could go up to 8.75% per annum, depending upon the bank. Moreover, fixed deposits are a safe option that delivers higher returns than a regular savings account.