Retirement planning is a process that evolves according to life stages. You must start your retirement planning by setting your retirement goals and gauging your time to get there. It helps you build a financial cushion for financial emergencies post-retirement. Moreover, health issues increase as people age and hospitalisation expenses consume the retirement corpus.
Let’s understand how you can plan finances when you are nearing retirement and have health issues.
Retirement Planning for People Nearing Retirement
Retirement planning includes determining one’s investment horizon, estimating post-retirement expenses, calculating after-tax returns from investments and gauging risk tolerance. For example, you may have invested in equity funds, stocks, etc., for retirement, translating into a sizeable corpus.
You must transfer the accumulated corpus from equity to debt funds to protect the wealth you have created over time. Equity investments are highly volatile, and you must shift to safer fixed-income investments around three years before retirement. It ensures capital protection and regular flow of income post-retirement.
One of the main factors impacting your retirement portfolio is the withdrawal rate. You have to estimate your post-retirement expenses and after-tax returns from investments as it affects how much you withdraw every year. If you understate costs, you will outlive your portfolio, and overstating expenses impact the post-retirement quality of life.
If you are one year from retirement, you can invest in an immediate annuity plan from a life insurer. You have to pay a lump sum premium, and the life insurer makes the annuity payout immediately. Life insurers give you the option of choosing the type of annuity payout. You must select the annuity plan based on risk tolerance and financial needs.
For instance, a fixed annuity payout offers a specified guaranteed amount every month. The annuity payouts continue as long as you live. If you have a higher risk tolerance, you can choose the variable payout option, where annuity payouts are linked to stock market returns. However, annuity plans offer lower returns than most fixed-income investments, and the annuity payouts are taxed.
Health Insurance for People Nearing Retirement
Older people are more prone to health conditions such as diabetes, high blood pressure etc. Moreover, treatment of health issues is expensive and long-term. You must avail a senior citizen health insurance plan on nearing retirement.
You can avail a senior citizen health insurance plan even if you have comorbidities and health issues. For instance, most senior citizen health insurance plans have a 2-4 year waiting period for pre-existing diseases. It covers these conditions after the waiting period.
Many senior citizen health insurance plans have a copayment clause for people with health issues. You have to bear a part of the medical treatment expenses whenever you make a claim. However, you must opt for copayment if you suffer from chronic illnesses. Insurers are willing to insure you as you pay part of the hospitalisation expenses.
You must check the features of the senior citizen’s health insurance plan. For instance, does the plan cover pre and post hospitalisation expenses, day care treatment and lifetime renewability option? Day care treatments are medical procedures that require less than 24-hours of hospitalisation. Moreover, many older adults opt for cashless health insurance where the hospitalisation expenses are settled between the insurer and the network hospital.
You must not take unnecessary risks with your money close to retirement. A wrong investment decision impacts retirement plans, and you will have to delay your retirement. Moreover, you can allocate a small portion of your corpus towards equity or hybrid funds. It boosts retirement income as it can offer inflation-beating returns with time. Finally, pay back all loans before retirement as it derails even the best retirement plans.
(The author is Founder and CEO, Clear)