Retirement Planning Process
The retirement planning process consists of several steps. While details might differ from individual to individual, the broad outline remains the same.
Set Your Financial Goals
There is a wide range of areas relating to retirement for which one would like to set goals. One has to remember that the goals here will include only the goals related to retirement planning. People get carried away and include all goals including children’s education in the retirement planning process. All these too are financial goals but they are not related to retirement planning and this differentiation has to be very clear. Any goal that helps in the retirement process and will be important in the process will have to be included. This will give the individual a very clear idea of your expectations from retirement planning.
Save The Required Amount
Once goals are set then work out amounts that are required to meet goals of retirement planning. This is the base for several activities. The next step is to save these amounts so worked out. For this, one will have to look at the cash inflows and outflows. Depending upon the flow of funds, one will have to check out how much can be saved from the existing amounts and how much will be needed to be saved from future inflows. The various heads under income and expenditure have to be considered to determine how much cash is available for savings. On should also check if this cash flow is constant or does it vary significantly during the year.
Invest It In The Appropriate Areas
The cash flow available has to be invested in the right areas to achieve the retirement goals. Since in most cases, retirement planning is a long-term activity, investments will also be long-term in nature. One has to ensure that there is a right mix and match of choices available with the actual amount saved and invested. The right mix of the various areas will also have to be chosen so that the overall risk remains tolerable for the individual. This investment has to be continued for a long time period in order to achieve the larger goals set in the process.
Look At Overall Wealth Creation
Once the investment process is on, one also has to take a careful look at the overall wealth accumulated so far and what will be generated going forward. One can create a statement of net worth where all assets and investments are clubbed together and from this, the various liabilities are reduced to arrive at what a person is actually worth.
The savings and investments made as part of the retirement planning have to add to the wealth of the individual. One has to be a bit careful while making the statement of net worth because all figures shown there might not be actually available in cash. This can be different from what is actually required by the individual. The crucial question of liquidity must be adequately dealt with before going ahead.
Monitor And Change The Plan If Necessary
The investment process then has to be monitored from the results that are provided along with the changes that it is bringing in. One has to remember that the efforts have to be targeted towards the goals of the individual at the time of retirement. There has to be a clear way in which the process is moving towards those goals.