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Retirement Planning


What is retirement planning?

Retirement planning means preparing for a steady stream of money after retirement. It entails setting aside funds and investing specifically with that goal in mind. Your retirement strategy will depend on your final goal, income, and your age.

Why do you need retirement planning?

Growing old can be expensive. Although frivolous expenses might 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 having a retirement investment plan is to ensure financial stability in your later years without depending on others.

Top reasons to have a retirement plan

Here are four reasons why every individual must have a retirement fund:

  1. Lack of a 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.

  1. 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 yourself will give you more independence to live life on your own terms because you will not be answerable to anyone else.

  1. 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.

  1. 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 alarming rate. While other financial goals may be negotiable, health cannot be compromised.  

How to plan your retirement?

The first step to plan your retirement is to picture it. Think about how you would want to spend your golden days and then estimate the money you would need to sustain. Don’t forget to account for inflation.

Next, estimate how much of it 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 per cent 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 retirement planning?

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, you should focus on investing and building your corpus. As you near retirement, you should be able to shift the money to safer avenues so that you can depend on dipping into it after retirement.

Importance of insurance for retirement

Although many people do not consider insurance an essential part of retirement planning, it is a vital and indispensable component. Life insurance is a cover for a surviving spouse. If you are no longer around, your spouse may struggle financially on their own.