Retirement Planning: Want to retire in 5 years? Here's what you must know!

Retirement planning is a crucial step in one's life and if you just have five years left before retirement, you need to be extra cautious. It's essential to decide whether or not you are actually ready to quit work after five years. Once you make a decision and decide to quit working after five years, you need to aggressively work towards building a retirement corpus or ensuring a reliable source of income in the non-working years.

It won't be a strenuous task on your part if you're financially secure and have planned efficiently for your retirement years as well. In such cases, you just need to continue with the investments and hold on to the strategies formulated earlier.

However, if you're not sure of financial security after retirement, the course of actions could be way different as you would have to aggressively work on ensuring financial stability after retirement.

To make things easier, let's go through a checklist to understand how well-prepared you are for your retirement in just five years.

How much retirement corpus would you need?

Assessing retirement fund needs could be difficult as predictions regarding future requirements aren't always accurate.  General financial advisors suggest that your retirement corpus should be 25 to 30 times of your current annual expenses. For example if you need 12 lakh per annum for your regular expenses then your retirement corpus should be between Rs 3 crore to Rs 3.6 crore.  

However, it may not always be true for all. Instead, you can get a better and realistic picture by analysing through a holistic approach. It can be possible by analysing all components of your finances, including elements that could impact your cash flow and expenses. In the next section, let's explore how you can ascertain your expenses after retirement.

How much will you spend after retirement?

While determining the actual expenditure amount could be tricky, you can at least make a detailed analysis of your present expenses to get an idea of expenditure after retirement. You can start by listing your current expenses and then start removing ones that you won't need after retirement. For instance, office travel expenses would be eliminated.

In addition, add the expenses that would come with age, for example, general medical expenses. Moreover, consider the bills you're paying now and hike them by some percentage to consider inflationary pressures. Though the figure might not be accurate, it'll help you in getting an idea of the expenses during retirement years. Also, this will aid you in ascertaining the retirement income amount.

For how many years your retirement corpus will help to earn income?

When you just have five years left before retirement, it's crucial to consider factors like how many years you can manage your retirement income with the corpus fund. It’s important to see for how many months the retirement fund can help you to meet your expenses so that you can estimate the total amount accordingly.

Is it necessary to get insurance against long-term illnesses?

If your family has had a history of long-term illnesses, then it's recommended to be prepared for such circumstances. You can consider health insurance policies that cover long-term illnesses. It'll help you in managing medical expenses in case such a situation arises. You can also opt for Senior Citizen Health Plans to get an added advantage as they sometimes also cover non-medical expenses.