Retirement Planning

What do you desire to do post-retirement? Well, every individual has their own requirements and aspirations for the retirement days. However, whatever the aspirations may be, it is very important to do a full-proof retirement planning, so that you can live a financially secured life after retirement and sustain your daily expenses without any burden.

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Not only this, to know more about retirement planning, you can dig further in this article to get all the details.

What is Retirement Planning?

Retirement planning can be described as the process of determining the retirement income goals and the necessary actions taken to achieve those goals. While planning for retirement it is important to consider various important aspects such as identifying the income sources, estimating the short-term and long-term expenses, managing assets and risk and implementing a savings program. It is important to estimate the future cash flow in order to determine retirement income. Even though retirement planning is a lifelong process, but it works best when you start planning for it from the beginning.

As per the rule of thumb, one needs to accumulate 70%-90% of the pre-retirement income in order to lead a financially secured life after retirement. This means that if an individual is earning Rs.70,000 per month they might need Rs.43,000-Rs.69,000 per month in retirement income so that they can enjoy the same standard of living after retirement. For instance, if individual plans to get retired in next 15 years, then he/she should plan their retirement in a way so that they can generate an income of Rs.49,000-Rs.63,000 per month from the year 2034 when they get retired.

If individual aims to use 70% of their pre-retirement income for post-retirement, then it is very important to start saving right from the young age. Moreover, along with savings, it is equally important to invest in the right instrument so that you can multiply your funds and create wealth over a long-term period.

Benefits of Retirement Planning

In this day and age, it is imperative to do a proper retirement planning so that one can deal with any type of shortfall, surpluses and emergencies in their retirement days. With proper retirement planning, an individual can estimate how quickly and how likely they can achieve retirement goals. Moreover, they can also gain control of the cash flow, earnings and expenses and can analyze how much risk they need to take in order to achieve all goals.

Let’s take a look at the top reasons why you need retirement planning.

  • Medical Emergencies-  Ageing and health problems go hand in hand. As an individual gets old, their health-related problems and emergencies also increase. Thus, medical expenses can be a huge dent in the finances post-retirement. According to the studies, India faces medical inflation of 14-15% per year. This means that the health cost possibly becomes 4 times what they were at 10 years ago. Moreover, it is not necessary that the medical or health insurance policy will cover all the medical expenses. Therefore, with the best retirement plan, one can accumulate enough wealth to deal with any type of medical emergencies post-retirement.

  • Inflation-  Inflation refers to the increase in the price of goods and services. As we know that inflation is increasing day by day, the effect of inflation which seems to be small in short-term can be huge over a few years. This means that an individual will have to pay more for everything, which includes (grocery, travel, accommodation, medical, etc.) in future. Thus, while doing a proper retirement planning one can consider this factor and can create an adequate retirement fund for the future, in order to live a stress-free life.

  • Deal with Uncertainties-  This is one of another reason why it is imperative to do a proper retirement planning. With the best retirement plan in hand, an individual can deal with any type of emergency situation or uncertainties post-retirement. Moreover, they can also secure the financial future of their loved ones.

When to Start Retirement Planning?

Even though there is no as such fixed age to start the retirement planning, it works best when an individual starts planning for it from the beginning.  The best retirement plans are normally started at an early age when the average work-life is between 30-35 years. This means that if the retirement planning is done right then one can easily enjoy the result of it after getting retired.

Let’s take an example.

Suppose Mr. Rajeev who is 25 years old starts planning for a retirement corpus of Rs.2 crore, which he will need after 35 years or at the age of 60 after getting retired. By saving or investing a small amount of Rs.3500 per month in various investment instruments that give 12% return per year, Mr Rajeev will cross the target and will be able to accumulate a fund of Rs.2.3 crore. However, if he decides to start saving or making investments after 5 years when he is 30 years then he will be able to accumulate corpus of Rs.1.2 crore i.e. half the fund by 60.  

Starting Age Amount of Investment Total Accumulated Amount Till 60 years
25 years Rs.3,500 Rs.2.3 crore
30 years Rs.3,500 Rs.1.2 crore

Thus we can see that a small delay of 5 years makes a huge difference in a long run. The best retirement plans in India are generally divided into three phases i.e investment phase, accumulation phase and withdrawal phase. In the first phase an individual invest and save money when they are likely to be in their 30s to early 50s.

The withdrawal phase starts, when an individual near the retirement age. In this phase one can either withdraw the money as lump-sum or can choose the option of monthly income in order to avail the regular flow of income.

How important is Insurance in Retirement Planning?

Retirement planning is all about making sure that you have a regular source of income when your salary stops i.e. after retirement. Life insurance plays a vital role in holding a retirement plan together.  For most of the people retirement planning means securing the financial future of themselves and their loved ones. Even though, one starts saving or making investment, the risk of unfortunate death always exists.

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