Retirement planning is a step-by-step process that involves evaluation of your financial goals, risk appetite, existing savings, current income & expenses and possible investment avenues that can help you achieve you financial goals post retirement.
In India, retirement planning typically involves contributions to pension schemes like the Employee Provident Fund (EPF) or the National Pension System (NPS), along with personal savings and investments. Real estate, fixed deposits, and mutual funds are a few examples of these investments.
When putting together a retirement plan, it's critical to take your lifestyle, anticipated retirement age, and medical expenses into account. Overall, retirement planning is creating financial plans that will enable you to save, invest, and spend in later life following your long-term objectives.
Why Plan for Retirement?
Let’s better understand why you need to plan for retirement.
Preparing for a Longer Life
Advancements in healthcare and awareness about healthy lifestyle choices have increased India’s life expectancy from 68 years in 2015 to 69.7 years in 2020. With India’s growing life expectancy, people today have to plan their finances expecting to live longer than earlier generations. Retirement planning is not just about saving money. It is also about ensuring that the retirement savings will last throughout the retirement years. To achieve this, one needs to plan for retirement with a long-term view, considering inflation, increasing healthcare costs, and other expenses. Individuals must select retirement plans that enable them to enjoy a stress-free retirement and focus on the things that matter the most to them.
Fight Inflation
Inflation refers to the rate at which the prices of goods and services increase over time, decreasing the purchasing power of money. You must consider the impact of inflation on the cost of living while planning for retirement. If you assume an inflation rate of 5%, the cost of living will double in 14 years. So, if you’re hoping to retire in 20 years, you’d need more than double what you require now to maintain your standard of living. Retirement plans find safe avenues to invest your money and build a corpus that can help you battle the impact of inflation.
Leave a Legacy
Retirement planning enables you to leave a legacy for your loved ones. Planning your retirement helps you accumulate wealth that you can use once you retire and pass on to your loved ones. By starting to save early for retirement and investing in retirement plans that offer guaranteed returns, you can build a significant corpus over time. You can also use the accumulated funds to support a charitable cause and help make a difference, leaving a legacy that goes beyond financial wealth.
Maintain Your Standard of Living
Crucially, retirement planning enables you to maintain your standard of living once you hang up your work boots. Retirement planning involves identifying your retirement goals, estimating the expenses, and creating a plan to accumulate sufficient savings to meet them. You can use retirement plans to create a retirement corpus that provides monthly payments to help replace your regular income and maintain your standard of living. Since these plans invest your funds, they can help battle the impact of inflation on your finances.
Fulfil Retirement Goals
Retirement planning empowers you to translate your vision for retirement into reality. By setting clear financial goals, like travelling the world or supporting loved ones, and building a roadmap to achieve them, you gain control over your future financial security.
Such meticulous planning ensures your retirement savings effectively meet your desired lifestyle. This will allow you to embrace your golden years with peace of mind and financial independence.
Be Emergency-Ready
Retirement is not all sunshine and leisure. Unexpected events like medical emergencies or home repairs can disrupt your financial security. Building an emergency fund specifically for retirement can provide a buffer during these challenging times.
By having a substantial emergency fund, you can weather unforeseen circumstances without derailing your long-term financial goals. Make sure to take into account the effects of inflation when deciding how much to save.
How Retirement Planning Works?
The objective of retirement planning is to prepare you and your loved ones for a stress-free retired life. Robust retirement planning will ensure that you are able to generate a steady flow of income to meet your regular expenses and fulfill your financial goals post retirement. Ideally retirement planning is a continuous process which evolves over time:
Early years
When you are young and starting out, your contributions towards your savings for your retirement may be limited but to reap the benefits of retirement plan you should start early.
Middle years
When you have established a sizeable source of income you are recommended to increase your contributions to your retirement plan. This approach will help you boost your savings.
Later years
Close to your retirement you set yourself to reap the benefits of savings for decades. This is the time when your start receiving the rewards to live a stress-free retirement.
