How much you save before retirement and where you invest the money are among the most important financial decisions you will make.
The five years before retirement are considered critical for financial planning. This is the time to check whether your savings are enough, review where your money is invested and prepare for future expenses.
The decisions you make during this period can show how comfortable and financially secure your retirement years will be.
Here are five key money checks to make before retirement.
Review your retirement savings
Check whether your retirement corpus is enough to support your lifestyle after 60. So, you need to start calculating how much money you currently earn and spend every month. Then estimate how much income you are likely to receive after retirement from sources such as pension payments or investments.
Now, you need to compare your expected retirement income with your current monthly expenses. If your expected retirement income is much lower than your current earnings, you may need to take corrective steps, for example, by increasing your savings over the next five years.
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Invest in safer options
When you are young, you can take investment risks, but when retirement is only five years away, it becomes more important to protect your savings than chase returns. You should put your money into areas that offer you stable and guaranteed returns.
These can include fixed deposits, debt mutual funds, pension plans and government-backed savings schemes. Such investments may not offer very high returns, but they are generally more stable and can help keep your retirement savings safe.
Clear high-interest debt
One of the important things you should do before you retire in the next five years is to clear high-interest debt, including credit card bills or personal loans. Because once your regular salary stops and you still have loan EMIs or outstanding debt, then a large part of your retirement corpus may go towards repayments.
Build a healthcare fund
Healthcare costs tend to increase as people get older. A sudden illness or medical emergency can quickly eat into retirement savings if there is no proper financial cushion in place. So, you should buy or upgrade your health insurance before retirement, as it can reduce out-of-pocket expenses later. Also, premiums are usually lower when purchased at a younger age.
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Update your nominations and financial records
It is important to review all your financial documents and make sure they are up to date. This includes checking the nominations on your bank accounts, fixed deposits, mutual funds, insurance policies, pension accounts and other investments. Letting your spouse or trusted family members know where these records are stored can make things much easier if they ever need to access them.
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