Planning for retirement and ensuring a solid safety net is a dream for almost everyone. Many people yearn to relax, stop working at 50, and spend more time with nature. However, retiring early means the income flow stops while expenses continue, making it a challenging time for many. Retirement planning is not like a typical investment decision. It requires a long-term commitment. As such, it is crucial to take measures to plan for retirement carefully.

It is better to start investing early
It is one of the most crucial things to remember when planning for retirement. However, starting early also implies that an individual has to keep investing for a longer period, which allows the power of compounding to work in their favor. This strategy enables an individual to build a massive corpus by starting early with a tiny monthly investment. But things rarely go as planned. However, when one starts early, one can make mistakes and adapt the course correction as one continues to invest. This is a luxury one won’t have if one starts late. One can adopt an SIP approach to retirement planning to align with one’s outflow and give them the extra advantage of dollar cost averaging.

Diversification is the key
The benefit of portfolio diversification cannot be stressed enough. It is important to know that one must never put all the eggs in one basket. So, one should start by evaluating the asset allocation—bonds, stocks, or cash equivalents. As one nears retirement, one can start pushing their funds more toward safer investments. If one finds it difficult to do it on their own, they can always work with a financial advisor. A financial advisor can help with periodic rebalancing to help one maximize returns.

Calculate the amount of money one needs for retired life
It is a crucial decision for a comfortable retired life. Of course, it is impossible to know for certain, but one can do some calculations and arrive at some number. One can start by making rational assumptions about the amount of money one will need after 25 years or so. 

Here are two rules to follow:
Be aggressive in inflating costs into the future. So, take inflation higher than the ongoing rate.
Be conservative in projecting long-term returns.

The amount one decides to save for retirement must not be static. One can perennially evaluate and re-evaluate at every milestone to ensure the plan is on target.

Pay down debt
According to financial experts, one’s goal in life should be to be debt-free by age 65. It includes all kinds of debt, including credit card debt, student loans, mortgage loans, or any other loan one probably took. This is because it is not advisable to carry debt into one’s retirement years when one is not earning anymore.

Keep spending in check
When one invests wisely, one can expect to create substantial wealth until retirement. However, it is important to avoid overspending as it can influence one’s investment strategy. One must consider withdrawing at most 3-5 percent of the retirement money in the first year and try managing accordingly.

Do not ignore taxes
The retirement corpus one builds must be meaningful, specifically in the post-tax terms and not the pre-tax terms. So, one should not churn one’s retirement portfolio frequently. It will have tax implications. As for debt funds, an individual should opt for a growth plan and work out a systematic withdrawal plan instead of focusing on dividend plans, as they are not tax-efficient. When comparing the debt and equity funds on a post-tax basis, one should know that the debt funds have the indexation benefit on long-term capital gains, but equity funds do not get the indexation benefit on long-term capital gains.

Do not ignore insurance post-retirement
If one has an existing life insurance policy, one must consider continuing it even after retiring. That adds a safety net for one’s spouse. Further, it is important to ensure ample medical insurance coverage for one’s dependent family, even as one retires. One must insure their property and assets to avoid nasty surprises.

Consider cash management
One must invest a portion in some schemes to ensure one does not outlive one’s assets. In such cases, the balancing act is vital. So, keep cash or cash equivalents, such as certificates of deposits and bonds, that can last five years if things don’t go as intended.

Have an emergency account
It helps to have a separate emergency account where one should park three to six months of salary. This account can cover the contingent costs without messing with one’s retirement plans.

Split the retirement money between regular annuities and lump-sums
In case one decides not to work after retirement, one must ensure the retirement corpus can cater to one’s regular monthly requirements, social needs, and emergencies. So, it is important to formulate a retirement plan that is a mix of regular annuities and lump-sum flows. One should structure the annuities so that one can generate optimal returns. Also, one can use an online retirement calculator to calculate and identify one’s investment needs for retirement goals. Thus, one can also plan one’s savings accordingly.