Step-By-Step Approach to Retirement Planning

Nowadays, retirement planning is important and it has been changing over the years. Earlier, FDs, gold, EPF, real estate, and a basic insurance plan have established a bulk of retirement plans in India. However, with health care costs and increasing life expectancy combined with the incompetence of traditional investment tools to generate good returns, retirement planning is observing a great shift in approach.

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The average life expectancy these days has reached up to 68 years of age and if you have the availability of good financial planning, you can easily live your life comfortably up to 80 years of age. This simply means that you should have a retirement corpus that can at least help you in meeting your expenses in your post-retirement years. While selecting a retirement plan, always keep the inflation, returns, financial objectives, risk appetite, and tax component in mind. Let’s study in detail: 

Pension Plans For Retirement Planning 

Retire and pension plans offer you financial protection and security so that you can live peacefully in your retirement years without compromising on your living standards. A pension plan is an investment that grows day by day through regular contributions. So at the time of planning retirement at an early age in life by buying the right pension plan in India, it helps secures a substantial fund. 

A Step-by-Step Guide to build your own Financial Retirement plan 

With the availability of several retirement plans available in India, selecting the right plan is a quite difficult task. To make this selection easy and convenient, systematic retirement planning is required. Here’s a quick laydown of steps followed while planning retirement: 

  1. Select your Retirement Age 

    Choosing a retirement age depends on your financial objectives and responsibilities. If you want to retire at 50 or 60 years of age, you must have considerable savings that can help you to lead a comfortable and financially secured life for the next coming years. 

  2. Set Financial Goals and Form a Budget 

    Determination of 'Why' is important like why are you saving your hard-earned money. Always set your goals as per your expenses and suitability. Also, consider your cash flow every month. 

    *All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

  3. Invest Early for a Peaceful Retirement 

    Start investing at an early age for your retirement. Most individuals in their 20s start earning and thus they have ample time to save for their golden years. Starting to invest early will help one to accumulate the necessary corpus without much financial stress. Moreover, it also gives a policyholder peace. 

  4. Determine the Average Life Expectancy 

    After deciding your retirement age, you are required to reach a value that correctly predicts the retirement corpus. Life expectancy is estimated based on your age, medical condition, health issues, family history, and other parameters. 

  5. Compute Your Retirement Corpus 

    In retirement planning, calculating the right retirement corpus is very important. Retirement corpus is the total amount that you need after retirement to meet your expenditures and continue to live with your current lifestyle. While doing this, keep certain things in mind such as miscalculation. It is very difficult to reach the exact amount but you can estimate the approximate figure. The best approach to calculate your right retirement corpus is to take your recent monthly expenses and extend it to the age of your retirement while keeping the average rate of inflation in consideration. The inflation factor helps to calculate the current expenses that will amount to during your retirement. This is called the future value of money.

    For example, Mr. Kumar is 35 years old, and he wishes to retire at the age of 60. Currently, he spends Rs.70,000/month on domestic things and other overheads. He also spends about Rs.4 to 5 lakhs annually on health and travel. As per his assumption, the home inflation is 7 percent a year for both before and after retirement. 10 percent of inflation is assumed on travel and medical expenses. He will make 6 percent for a year on his retirement mass once it is constructed and invest it after his retirement.

  6. Estimate the Future Value of Savings

    What amount you are saving annually after meeting all the expenses plays a very important role in structuring your retirement corpus. After estimating the amount you are saving, the next step is to determine its future value.

    For example: If one is saving Rs.1 lakh yearly for retirement and then you spend this particular amount in an avenue. The avenue helps in earning a 10 percent rate of return per annum. After 25 years, the retirement corpus will become approximately Rs.98 lakhs.

  7. Avoid Avoidable Expenses

    If you are not able to save a sufficient amount for your retirement, cut down your extra expenses such as dinner in restaurants, vacations, shopping, etc. Cutting down on these expenses helps you invest more, thus you can reach closer to your target amount.

    *All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

  8. Regularly Review and Track Your Plan

    Regularly monitor your retirement plan, at least once a year to make sure that you are on the right way in your retirement planning process. In case of changes in your retirement plan such as income, expenses, retirement age all should be updated.

What is the need to plan your finances for retirement?

It is quite easy to cover your expenses when you are earning, but what after retirement? At that time you require enough amount of money to live your retirement comfortably. Investing in pension plans is a smart decision. 

  • To cover daily living expenses
  • To cover medical expenses
  • It helps to fight inflation
  • Fight against the uncertainties of life
  • Helps to meet your retirement objectives

Wrapping It Up!

Everyone wants financial stability in their retirement years for which, one should need sufficient retirement corpus. The selection of your retirement age depends upon your financial goals and responsibilities. Always consider inflation, medical condition while planning retirement. Invest early in the pension plans for your retirement years so that you live peacefully without any financial burden.

Written By: PolicyBazaar - Updated: 08 September 2021
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