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Tuesday, October 23, 2018

C-Suite Advisory

How Can You Retire Rich? It’s Never Too Early To Start Planning.

Plan and Retire Rich: For me, retirement is a time where you would have holidays, beaches, golf, and relaxed life. You should be able to catch up on all your hobbies and not have any worries. The focus would be on health and inner peace and finding happiness in all what we do. I also think it would be a time where you devote your energies to the betterment of the society.

So I would ideally want all of us seeing ourselves doing these or indulging in hobbies you didn’t have time to enjoy while you were working rather than worrying about the bills. The latter is probably not our ideal plan but could become a reality for most people if not planned well.

For this to happen, we need to plan well in advance, and for the plan to become a reality we need to evaluate our current lifestyle and costs which would increase as we go forward. However, let’s be mindful that this plan does not get executed well for many people, and in life, you don’t find many people who think that they have more money than what is needed to retire.

Some Important steps which would get us there:

Start saving early, rationalize spending:

It’s essential to understand that 25-40 Years is the period in life where the person has the best physical and mental abilities to enjoy life. At the same time, there are not many expensive costs associated with medical or family expenditure leading to a better saving potential.

When we speak of savings, it may not be only monetary savings. Savings could also be through building up experiences, travel and spending money on learning and development which in the long run makes us more employable.

The savings need not translate into hard cash but the experiences and knowledge or degrees gained would also classify as early savings. Impulsive spends are best avoided. We should participate in all retirement schemes like Pension schemes, Provident funds and if possible contribute a higher percentage in them to build up our corpus.

Taking care of our medical bills, adopting Medical insurance policy early:

The biggest worry with age is costs to be incurred in case of medical emergencies. It is best advised to take a policy early as it gives benefits of low premiums and with time even pre existing diseases get covered. You also get benefits like free periodic medical tests as well as cash less hospitalization. We should also ensure we take riders to cover accidents and disabilities leading to loss of employment. Starting insurance early gives a big relief financially when you retire.

Utilization of annual Bonuses

Typically we would find that the monthly income gets consumed in the monthly expenditure. With current inflation trends and rising costs of housing and education, the potential of monthly savings is minimized. Annual bonuses play a big part in the possibility of saving and having a healthy retirement. If impulsive spends on festivities and luxury items are controlled and bonuses are used to create a corpus , then in a period of 15-20 years, the annual savings from bonuses received by every individual could end up building a strong corpus to retire rich. It is important to be disciplined in our approach to savings. Participate in regular saving schemes like PPF, SIP’s in mutual funds or even shares for impactful returns.

Retire your loans before you retire

The biggest debt an Individual takes is to build his house. Though mortgages are available for longer durations like 20 years, it is advisable to retire the debts early to give the individual flexibility in retiring early. House as an asset is definitely worth investing as it brings stability to investments and at the same time will ensure lower running costs like rent which can be a big drain on your monthly income when you retire. Typically the investments in real estate have the ability to show a compounded growth of 7-8 % over a 10-20 Year time frame.

Take Some Risks

For each stage of life the risk profile changes .As a bachelor you can be invested with much higher risks so investments in shares is an option. With time, this can mature into savings in mutual funds. As you get closer to retirement age, you can lower the risk by investing in fixed-income assets such as bonds and deposits.

Diversification of portfolio

You shouldn’t put all of your eggs into one basket is an old proverb which acts well for all. This implies that we can diversify and have investments in various options like Gold, real estate, shares, deposits, mutual funds. Some could be more liquid while others would be long term.

Look at Tax implications and liabilities on returns

Various investment options have different tax liabilities. Some get advantage of lower taxes if retained for a specific tenure like Long term capital gains. Some investments get returns in the form of Dividends which are tax free in your hand thus giving you a better cash flow and effective return. There are other returns which may have higher TDS liabilities thereby impacting your cash inflows. It is important to make a judicious mix of investments in your portfolio which is tax efficient when you retire.

Invest in Income-Generating Real Estate

Another way to make sure you have money in retirement is to buy income-generating real estate. The key is to purchase and finance it carefully so that you meet any debt obligations from the revenue earned, so that by the time you retire the asset is debt free giving you a lifelong source of alternative income.

Add alternative income sources

Try and build your income if possible through alternative options like doing consultancy assignments, free lancing or turning a hobby into a money-making venture.

Consolidate your assets and investment before you retire

Consolidate the investments into manageable proportions. There is no point in having multiple accounts and small pocket size investments where the costs of monitoring them will not justify the investment itself. You can sell off assets and repay debts, close down low return investments or reorganize the same. Similarly get out of higher risk categories and consolidate into fixed income plans when you retire. The idea is to get a stable cash inflow more or less equivalent to current earnings without hassles of constant monitoring and taxes.

Lower cost of livings

Look at your current costs; look at options to lower the same. If you would rather focus on holidays and travel you could downsize residential investments to something more manageable and the additional amounts freed could be invested for better monthly income.

Get out of the rat race

Look at employers with better retirement plans, medical covers and also don’t try to match with Your friends and neighbors who might appear to be rich and spending lavishly as this can majorly impact your dreams of retiring rich. 

Get Financial and Investment consultants

While we may be tracking markets or have friends who advise but it is important that once your investment portfolio builds up , a dedicated consultant looks at and monitors the same and suggests ways for better leveraging the investments with end goal and targets. This  will also help in building seriousness to the exercise and professional help brings in better quality of research and returns. This could be through better selection of stocks, Bonds, Funds or real estate assets.

With the above in place and a disciplined approach , I am sure all of us will retire rich and spend our twilight years enjoying life to the fullest.


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Vikas Chadha

Vikas ChadhaVerified account

CFO And Executive Director at Berggruen Hotels Pvt Ltd (Keys Hotels)
Vikas Chadha currently holds the position of executive director and chief financial officer of the Keys Hotels (Berggruen Hotels Pvt Ltd). He is a qualified chartered accountant from the Institute of Chartered Accountants of India (ICAI) and cost accountant from the Institute of Cost Accountants of India (ICAI), formerly known as the Institute of Cost and Works Accountants (ICWAI). He is a fellow member at the Institute of Directors, India. Vikas has nearly two decades of experience in finance, business planning, and strategy.
Vikas Chadha

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