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Having a Good Credit Score Is Critical For Retirement Here's a new rulebook of retirement planning

By Shruti Aggarwal

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"Preparation for old age should begin not later than one's teens. A life which is empty of purpose until 65 will not suddenly become filled on retirement," said well-known American evangelist Dwight L Moody.

In simple words, retirement planning should start when one starts earning, typically at 23. Begining to invest for retirement early also means that one has ample time to compound and accumulate the necessary corpus required to live a comfortable and easy life without financially depending on anyone, including kids or any immediate family members.

However, most Indians do not give much importance to early retirement planning. As youngsters, they want to indulge in luxuries of life, travel, shop, and party with friends. Most Indians start to plan for their retirement life during the age of 35-40, triggered by some mishaps in the family such as a death, accident, job loss or increased family expenses. Also, in the early 30s, an individual has clarity about the job, has started a family, and has small savings, so planning for retirement becomes easy.

Let us discuss some fundamental rules of retiring with peace of mind and as a millionaire by following meticulous planning and fiscal discipline.

Start early with various government sponsored financial instruments

Everyone's fiscal journey is different, but the formula to compounding is the same. Given that an average Indian fresher earns a monthly pay package of INR 40,000, he/she is better positioned to start saving early, assuming fewer liabilities and responsibilities. It is advisable to open the central government's most coveted National Pension Scheme (NPS). A minimum of INR 5,000 per month investment at 8 per cent compound interest would help create a retirement corpus of Rs 1.13 crore by 60 years of age. The monthly contribution can be increased as and when the salaries increase.

Similarly, one can also create a Public Provident Fund, which is the only investment instrument with triple tax benefit. The early one starts, the maximum benefits one enjoys. A minimum amount of INR 5,000 for a minimum of 15 years would help create a corpus of INR 1.13 crore by 38 years of age. However, many would argue that investing about 25 per cent of the salary at such an early stage would not leave a person with enough amount to spend on other luxuries of life.

It is wise to opt for a credit line card

Hence, it is wise to opt for a credit or credit line card. However obnoxious it may sound, having a credit card helps to serve as an alternate source of financing for daily and discretionary spending such as buying a car to regular recurring utility expenses.

A credit card also acts as a shield in an unforeseen expense without exerting any pressure on one's monthly investments. However, the trick is to use the card smartly and never exceed costs more than the income. The card can also help earn loyalty/credit points, cashback, and several other rewards that can be smartly used to manage discretionary expenses. Besides, it provides greater liquidity and serves as an asset, especially while taking loans at later periods of your life.This habit can also continue after retirement.

Maintain a good credit score

It is a myth that a person would not require any credit post-retirement. While 60 is the official retirement age, we all know that 60 is the new 50, and we have seen many professionals either pursue their passion post-retirement or start up all over again with a new business idea. In such a scenario, a good credit score of 750 and above helps. However, taking a loan at an old age is not easy as banks doubt the person's repayment ability. Having a good credit score benefits and help in times of an unforeseen situation or when one decides to start a new business later in life after retirement. Banks readily agree to lend in such cases, and one doesn't have to beg or borrow from kids, immediate family, or friends without disturbing the retirement corpus.

Paying off debt

While having a credit card is a wise idea, paying off high-interest debt is a more ingenious idea, sorted through the salary. Auto and student loans are something that needs to be repaid before retirement. However, home loans can be still be continued for tax-saving purposes. The extra amount can be investing in other assets such as stocks, mutual funds, bonds, etc.

Health insurance is critical

Healthcare costs such as regular medical checkups are likely to rise as we age, and Indians do not have social security or long-term healthcare products, unlike other developed nations. Plus, there is inflation. Hence there must be a separate healthcare portfolio that is separate from the retirement savings. Depending on the lifestyle and hereditary diseases, if any, one can opt for a comprehensive health policy early in the professional career as choices are likely to shrink, and premiums are likely to expand with age.

Plan for an alternate income source

As the average lifespan of human beings is increasing, retirement at 60 is too early. Hence, a person must start evaluating some alternate source of income in the late 40s itself. This could be a small business idea or some part-time work that one can do comfortably from a remote location.

Review the retirement planning from time to time

Retirement decisions and planning need an annual review and cant be put on an auto-pilot mode. Financial planning needs a yearly inspection to ensure that it is in tandem with inflation and rising incomes.

Keep monitoring the credit scores also from time to time. While everyone's retirement journey and life goals are unique, it is difficult to conclude how much should be one's retirement kitty? Many sites provide calculations depending on the investment product they sell; a simple rule is that it should be 20 times of the total gross income for anyone to lead a comfortable retirement life.

Shruti Aggarwal

Co-founder, Stashfin

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