Why Retirement Planning is Important

We are so much engrossed in our day to day activities of life that we almost forget to plan our retirement. But retirement planning is very important in order to have a financially independent life after retirement. You need to note that you need to follow some simple steps properly, in order to sort all your financial needs.  Let's go through some of the important things that you need to know.

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  • Peaceful Post-Retirement Life

  • Tax Free Regular Income

  • Wealth Generation to beat Inflation

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Why is Retirement Planning Necessary?

You need to closely look at each of your income sources, if you wish to plan for your retirement.  Let us suppose that you start your savings when you are 30 years old. The advantage of starting early with your proper retirement planning is that you can have a time period of 30 years to accumulate a large amount of money for your retirement corpus.  If you will start investing Rs 5,000 every month, then the corpus will grow to Rs 75 lakh (we have assumed a compounded annual growth of 8 percent) by the time you turn out to be 60 years.

However, if you delay your retirement planning and start saving at the age of 40 years, you will only be able to accumulate Rs. 30 lakhs only for your retirement. If you delay your planning by 10 years, then your corpus will be even less. The reason for such low corpus is that compound interest will not be levied on your sum.

You need to remember that it is not wise to lower you’re your savings for retirement. Make sure that you systematically plan for your needs.

Let’s See a Case!

Shyam Shukla planned to take a voluntary retirement scheme (VRS) at the age of 65 years in 2001.  Arunima retired in 2008 at the age of 63 years.  Both of them live with their immediate family that includes their son, his wife and their granddaughter. They do not have any financial responsibilities towards their kids as they their son and their daughter-in-law are also working.  Therefore, their prime goal is to travel and explore new places.

Income every single month (pension plus interest) - Rs 55,667

Expenses (Monthly) - NA 

Surplus (Monthly)# - Rs 20,667

Retirement Corpus:

Equity - Rs18 lakh

Real Estate property - Rs 2 crore

Debt - Rs 63.8 lakh

Cash/Jewellery - Rs 20,000

Keep Aside at least 10% of your Salary Every Month

The very first rule that you need to religiously follow in order to accumulate a sufficient retirement corpus is to start saving as early as possible. It is one of the easiest rules that you can follow. Perhaps it is the hardest rule for people who spend extravagantly. We know the fact that provident fund gets deducted from income of those who are on a regular payroll. In this, 12% of their basic salary plus an equal contribution of the company is contributed into their PF account. However, the best thing about PF is that one cannot choose to avoid it even if they want to.  So, the tip is that you do now consume this unavoidable savings.

People Also Read: National Pension Scheme

Do Not Consume Your Savings Recklessly

"Also, individuals should get rid of all debt before retirement so that it does not eat into the corpus," says Gaurav Mashruwala, a well-known financial planner.

Every time we switch our jobs, our PF savings fall under greater risk. The major reason behind this is that during this time every individual has an option to withdraw their PF balance when they have to transfer their PF account to the new employer. Therefore, people tend to pay their debt using these savings. Thus, it is advised to stay clear from debts and do not let your debts wash out your savings.

Estate Planning

While planning for your retirement you can also consider your loved ones.  You need to know that a part of your savings may help you to save money for your children and even your grandchildren. You might need to spend money on their education or their marriage or simply pass it to your children as a sentimental asset. This might include a real estate property that you can pass on to your descendants. Without a proper retirement planning, you might have to liquidate your assets so as to cover up your expenses during your retirement period. Due to this, you might not be able to provide your loved ones with a financial legacy. Even worse this might end up in making you a financial burden on your family during the retirement age.

Over to You!

As we know that life is quite uncertain and this is the reason we have no idea what might befall. Unexpected illnesses, your dependent family and pension schemes are certain factors that come into play. Therefore, it is advised to start a proper retirement planning right from the time you start earning.

You may also like to read: Seven Golden Tips for Retirement

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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