Retirement planning is something that many people put off until later in life. But the truth is that planning for retirement should start as early as possible for maximum benefits. In this article, we’ll explore what exactly retirement planning is, why it’s important, and how to achieve it.
First and foremost, what is retirement planning? At its core, retirement planning is preparing for a steady stream of income after retirement. This involves setting aside funds and investing specifically with the goal of financial stability in mind. The strategy for your retirement planning will depend on your final goal, income, and current age.
Why is retirement planning so important? For one, growing old can be expensive. Although frivolous expenses may reduce, medical bills are only likely to rise. Add to that the burden of inflation, and not having enough money to sustain future expenses can cause stress and worry. The purpose of retirement planning is to ensure financial stability in your later years without depending on others.
Here are the top 4 reasons why implementing a retirement plan should be a priority for everyone:
- Lack of social retirement benefit: India has yet to implement a robust social security system with retirement benefits for its senior citizens. Although pensions and employee provident funds do exist, they may not be sufficient to cover all expenses. This is why creating a diversified retirement fund with fixed income and mutual fund investments becomes crucial.
- Financial independence: For generations, older Indians have depended on their children for retirement support. Lately, youngsters are leading more independent lives. Often, they are unable to support their parents financially. Even if they can do it, being responsible for oneself gives you more independence to live life on your own terms because you will not be answerable to anyone else.
- Rising costs: As an investor, you will need to account for rising costs. Inflation is a vital element to consider when planning your retirement. If you are unable to keep up with rising costs, you may have to compromise on your standard of living.
- Medical emergencies: Healthcare costs are pivotal to understanding the importance of retirement planning. While retail expenses continue to rise steadily, healthcare inflation is growing at an alarming rate. While other financial goals may be negotiable, health cannot be compromised.
So how can you plan your retirement? The first step is to picture it. Think about how you want to spend your golden days and then estimate the money you would need to sustain it. Don’t forget to account for inflation.
Next, estimate how much of your retirement can be covered using your assets. This can help you arrive at the deficit amount you will need to plan and arrange for the future.
Analyze your present financial situation to gauge how much you can save. Ideally, about 30-50% of your total savings should go towards retirement.
After this, you can narrow down on investment avenues. The younger you are, the more time you have to take advantage of compounding as well as take a few risks. Invest aggressively in mutual funds and even company stocks, if you can afford it. As you grow older, you may want to consider diversifying your investments to include lower-risk instruments like government-backed securities. Also, think about including annuities and insurance policies in your retirement plan.
When should you start planning for retirement? The answer is the sooner, the better. Although youth in their 20s might not worry about retirement, starting early does give one more leeway. If you have missed that bus, you can start where you are. A good retirement plan should be segregated into investment, accumulation, and withdrawal phases. Until your early 50s, focus on investing and building your corpus. As you near retirement, shift the money to safer avenues so that you can depend on dipping into it after retirement.
Importantly, don’t forget about insurance. Life insurance is a cover for a surviving spouse. If you are no longer around, your spouse may struggle financially on their own.
To summarize, planning for retirement must be a non-negotiable part of everyone’s financial strategy. The future may be uncertain, but it can help to be prepared. Diversify your retirement corpus by investing in mutual funds, fixed-income securities, and government-backed securities. Start as soon as you can so that your later years are relaxed and stress-free.