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. 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. You can start at any time, but it works best if you factor it into your financial planning as early as possible.
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. 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.
The reason we need retirement planning is 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. Investing in a pension plan requires you to contribute a certain sum to a fund over some time. This can be done either regularly or in a lump sum. These payments which you invest in your pension plan help build your corpus through the years. This corpus is used to provide you regular payments that you can use to meet your expenses once you retire. Thus, a pension scheme makes sure that your income flow does not stop even after retirement.
The benefits of retirement planning are:
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.
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.
For generations, older people 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.
It is never too late to start planning for your retirement. Many strategies are available depending on your goals; you should go for investment vehicles that align with them. Knowing beforehand when you need to retire, how much you will need, and how you plan to spend your retirement should guide your retirement plan. Planning for retirement must be a non-negotiable part of everyone’s financial strategy. The future may be uncertain, but it can help to be prepared. Diversify your retirement corpus by investing in mutual funds , fixed-income securities, and other government-backed security