In your 50s? How You Should Plan Your Retirement

We all want to build a fund for retirement—that time of our lives when we won’t have employment or regular income to support ourselves. Creating that fund requires planning, money management, and patience. But in real life, it’s hard to have a straight and narrow path towards the attainment of our objectives.

The key aspect to building the perfect retirement corpus is starting early. The later you start, the more financially vulnerable you’ll be in your retirement years. The risk is substantially higher as your hit your 50s. With the average retirement age hovering around 60, you have about 10 years left to create the corpus that will keep you going till your death.

Assuming that your age is 50, you retirement age would be 60, and your life expectancy is 75, you need to plan how you will raise funds for yourself and dependents in those 15 years. You don’t have a lot of time left, and it’s best for you to get to work quickly. You must make the best use of available investment tools to create your retirement fund for your sunset years.

The long and short of it 

If you have touched 50 and do not have any retirement plan in place, don’t panic. You still have 10 years of active work ahead of you—and possibly some more years post the age of 60, if needed—and you can still create a decent retirement corpus.  

However, you don’t have the advantage of someone in their 20s or 30s, who can start slow, make low-risk investments, and still build a sizeable corpus using the power of compounding. Since you don’t have time on your side, you’re not going to enjoy a great deal of compounding. Hence you’ll have to take some calculated risks and work with a lot of focus in order to build your retirement corpus.

Make an aggressive approach your best friend 

When starting out late or when in your 50s, you may have missed the bus in terms of starting out with aggressive or moderately aggressive investments early in life and then gradually making the switch to conservative instruments in your late 40s and 50s as you closed in on your retirement.

Starting your retirement plans so close to your retirement means that you may have to adopt an aggressive approach towards investment for your retirement. 

For someone with no retirement planning at 50, the risks are disproportionately high. Even if you start retirement planning at 50, with just 10 active years of work you will need to invest a substantial amount per month towards retirement planning.  

Let us assume you have a monthly expense of Rs. 50,000 and start retirement planning at 50 with an average inflation rate at 7% per annum and average returns on investment at 10% per annum. To maintain your current lifestyle after your working years, you need to make a monthly investment of Rs.71,546 for the next 10 years to reach your retirement goal of Rs. 1.44 crores by the time you retire. 

The good news is that, at 50, you will have the luxury to invest a higher sum of money without having to compromise on your current lifestyle. At 50, you are most likely to have taken care of the financial burden of your children’s education and other major obligations in life. You can therefore take care of your finances by looking at your debts, with debt clearance accorded top priority, along with retirement investment.  

Starting retirement planning at 50? 

The table below compares the retirement plan of two individuals Mr. A and Mr. B. having same monthly expenses and standard of living. While Mr. A started early and managed to save a retirement corpus of Rs. 25 lakh till he reached 50. Mr. B on the other hand is a late bloomer and plans to start out at 50. 

Considering the retirement age of both at 60, a life expectancy of 75 years with an annual inflation of 7% and rate of return on investment 10%, here are how much they must save for the next 10 years. 

•   Mr. A will need to invest only Rs. Rs.39, 317 for the next 10 years till he retires to reach his desired retirement corpus.  
• Mr. B meanwhile just because he started late will have to invest a high sum of Rs.71, 546 every month for the next 10 years to be able to reach at par with Mr. A.  

Mixing of aggressive and conservative instruments for retirement 

For someone with no retirement corpus, the only option is to invest the largest possible part of their savings in aggressive instruments like equity mutual funds and stocks. However, if you have some retirement corpus in hand, your best approach at 50 should be to invest with a mix of aggressive and conservative instruments.  

Revisiting your investment plan 

Here are some tips to ensure your retirement planning stays on the right track at 50. 

Trust equity: At 50, it is a good time to revisit your retirement portfolio and check if you can allocate more towards equity or vice versa instead of traditional deposits like bank FDs. If you are just starting out on your retirement goals, opting for equity would be your best option, but if you have some corpus already, you could move in an out of equity investments in a calibrated manner. This you could do while assessing the prevalent market and macroeconomic conditions and understanding whether they allow for aggressive equity investing in the short term. As you get closer to your retirement, you could start switching from equity investments to debt ones to secure your capital. This too should be done in a calibrated manner as you should redeem those investments that you need for short-term expenses while remaining invested in other investments and letting them compound.  

Stop paying on endowment plans: Check your insurance plans. If you have endowment plans which offer a lower rate than mutual funds or ULIPs, you can consider switching out of them after making your mandatory premium payments. Make sure to check the surrender costs of such insurance plans before you make the move toward equity-linked instruments which can offer you a better return in the same time period of 10 years. 

Don’t touch your EPF: Employee Provident Fund, or EPF, is tailor-made for retirement goals and you should not consider any partial EPF withdrawals when planning your retirement. Ensure your EPF remains committed towards your post-retirement goals even if you are faced with any big purchase decision like buying a house or your child’s marriage.  

Have an independent health policy: All retirement planning does not have to be about investing—sometimes protection is just as important as investment. If you have been still depending on your employer health insurance cover, now at 50, it is the right time to go for an independent health cover. Without an independent health cover, a single health issue after you retire can deplete virtually all your retirement savings. Buying individual health cover at 50 when you are active and still working will not only be more pocket friendly but also offer coverage for pre-existing diseases after the cover period. 

Fifty is a crucial age to reevaluate your retirement goals and plans. Whether you have been saving for retirement or are starting out late with just 10 years to go before retirement, financial planning at 50 is your last chance to ensure a financially hassle-free retirement period.  

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(A version of this article appeared in the Financial Express. Photo ? LLudo/Flickr under CC BY NC SA 2.0.)