In this series we have discussed some key financial management principles to be followed at various age groups, the twenties, thirties and forties. By the time you reach your fifties, you should have checked off five important benchmarks:
- You have settled in your own house and have either paid off or are close to of paying off your mortgage loan
- You are firmly on track with your retirement plan
- You have "adequate" life insurance cover
- You have paid for your child’s college education or have made provisions for it
- You have a stable career and higher income levels
If you have checked off these five benchmarks, then you can approach your fifties with a lot of bullishness, as you prepare for the final run before your retirement. If for any reason, if you have fallen short on any of these benchmarks, it is time that you seriously look at your monthly expenses and assess how realistic your expectations are, to make up for the gap in the shortest possible time.
In this article we will discuss few important personal finance do’s and do not’s, for people in their fifties.
Long term health cover:Health is the most important aspect of our lives. You need to empower yourself with access to high quality healthcare, even during your retirement at an affordable cost. In India we often ignore long term healthcare planning, because we often assume that our children will take care of us, when we are older. But with ever increasing competition in their careers, it is sometimes puts a great strain on the children, even if they would like to take care of their parents. Therefore at this stage of life, it is important that you select a long term health insurance plan to address your healthcare needs, even in your retirement years. There are several considerations in selecting a good long term health insurance scheme. Maximum renewal age, treatment wise cover and co-pay policy, day wise cash limits, maximum available, are among other considerations. You should consult your financial advisor in helping you select the right policy.
Refine your retirement plan:Retirement planning is a complex topic. You need to have a clear vision of what your retired life will look like. As we go through various stages of life, the goal post of retirement planning may keep shifting. The important questions to ask at this stage are, where will you want to settle after your retirement, will you continue to live in your current home or shift to a different house, will you like to relocate back to your hometown (if you are not living there already) or live in different city, will you like to start a business after retirement, will you like to retire early, so on and so forth. You would then need to refine your retirement plan and start executing on it.
Consult with a financial planner about retirement plan:Even if you think you are on track with your retirement plan, there are lots of complexities and unknowns. You should take expert advice by consulting with a fee based financial planner. The fee based financial planner work on the client side, i.e. your side, as opposed working on the distribution side. They have knowledge on wide variety of products available in the market that will address your retirement planning needs at this stage of your life.
Invest in yourself by building capabilities:Corporate lives are getting shorter. You need to continually invest in new capabilities to stay competitive in the job market. Management development programs, distance education, new certifications, seminars and conferences are always good investments to improve your skill set and competitiveness. If you plan to start a business in the future, this is a good time to arm yourself with the necessary knowledge and start thinking seriously about your business
Review and rebalance your portfolio:At earlier stages of life your portfolio exposure to equities may have been quite high. Equities over a longer period of time yields superior returns compared to other asset classes. However, equities are also riskier investments. In your fifties as your risk profile is changing, if equities constitute more that 70% of your portfolio, then you should reduce your exposure to equities and shift to fixed income investments. You should consult with your financial planner and tax planner on suitable investment options, given your financial plan and tax situation
Do not fall for chit funds that offer high guaranteed returns:Over the last few years, Indian newspapers have been awash with stories of chit funds that were largely Ponzi schemes. While not all chit funds are Ponzi schemes, if you have invested in chit funds, you should make sure that you understand the business model very well. Also make sure that you read the terms and conditions very carefully. In case you are not comfortable, you should redeem immediately, to save yourself from the loss of your hard earned money
- Do not prioritize your child’s expensive college education over retirement savings: It is every parent’s desire to see that their children get the best possible college education. However, it is not prudent to prioritize funding expensive college education over your retirement planning. With careful planning it is possible to plan both your child’s college education and your retirement. If however, you are behind on your retirement savings you should explore educational loan facilities, of which there are many schemes available in the market
Do not procrastinate on drafting your will:This is a morbid topic. But you can save your family from a lot of trouble by drafting your will. In addition to writing your will should also consider other estate planning documents, like a power of attorney, which allows your nominees to make financial decisions if you are incapacitated for any reason. Now is also to good time to careful review all the documents related to your investments, make sure that they are in order and your nominations are updated.
- Do not get a habituated to a lifestyle that you cannot sustain after retirement: At this stage of your career, your income is probably higher than ever before. It is tempting to upgrade to a more extravagant lifestyle because you can afford it. But with retirement only a few years away, you should be careful. If you will not be able to sustain your current level of income after retirement, then you should tune your lifestyle accordingly. Habits are notoriously difficult to change, and changing lifestyle overnight after retirement is often painful.
Stay healthy:Staying healthy is the most important mantra of a successful happy life. The rigors of modern day business and careers, makes it challenging. You are not getting any younger, so you should consciously make healthy living a habit. Healthy food, fresh air, regular exercise, regular health check-up and most importantly being happy are simple things, which have very long term beneficial effect on our lives.