A recent retirement study found that only 33% of Indians are saving enough to fund a comfortable retired life¹. Yet, with advancements in healthcare, life expectancy has increased. Hence, there is a need for funds for longer retirement years. But the absence of regular paychecks can make meeting your old age expenses challenging without a retirement plan.

If your retirement is no longer far off in the horizon, don’t worry. You can still make up for the lost time. Here’s a guideline to help you build enough corpus and enjoy financial freedom in your retirement.

Determine where you are now

How much you need to save depends on the assets you already have as possible post-retirement income sources. Find out how much funds you can expect from avenues like:

• Savings accounts
• Bank deposits
• Employee’s provident fund
• Property rents or sales
• Insurance policies

Next, assess how much income you will need during retirement. Draw a list of your expenses that would continue through your retirement years, like:

• Grocery and utility bills
• Clothing
• House maintenance

However, medical expenses can go up since old age often brings health-related complications. Also, the costs of consumer goods will increase in time due to inflation.

So how to calculate the income you will need in the future? Financial experts advise using the long-term historical average inflation rate.

Compare your expected expenses with the savings from your existing assets. You will get an idea of how much more you must save to be financially secure. And a specific savings goal in mind will help you stay on track.

Explore the power of compounding

When you invest, you earn interest. And then with time, you get further interest on the interest you have already earned. This is the power of compounding interest, which increases the future value of money.

Therefore, you should allow your capital to multiply through long-term investments. Compound returns from twenty years or more can turn a modest sum into a sizeable corpus. And one of the best ways to achieve this is to invest in market-linked life insurance plans or ULIPs. Also, with ULIPs you get the best of both worlds – opportunity to save & grow your money and financially secure your family’s future with a life cover.

Cut irrelevant spending

Splurging on luxury items can give instant pleasure. But over-spending affects your financial stability. And as a late starter, you need to save the majority of your income to avoid deficits in your retirement fund. Hence, you should focus on reducing expenses wherever possible to free up extra cash you can save. You can consider the following tactics:

• Transfer a major portion of your income into savings channels via automated fund allocation systems
• Pay off high-interest debts like credit card dues instead of making minimum payments
• Try to limit your credit card use and impulsive buying of gadgets and clothing
• Downsize everyday expenses like eating out and redirect every bit you save into investments

Increase your risk-tolerance

When you start late, you cannot follow conventional approaches to capital market investments. The usual norm is to dodge equities and move to the safety of debt funds when you are close to retirement. But some exposure to growth assets like equities is needed to boost your profits. So, a balanced approach of investing in both debt and equity funds as per the retirement goal you have in mind, will be required.

Hence, you should diversify your portfolio into equities and safe bonds to increase your risk tolerance. Experts recommend the ‘100 minus age’ thumb rule to estimate ideal equity allocation as per your age. Thus, if you are 55 years old, you should have 45% exposure to equities. And investing in retirement-specific ULIPs allow you to allocate your money into fund types of your choice.