We all know that life is full of uncertainties; there are only a few certain things. Therefore, it’s important for us as human beings to do retirement planning effectively to safeguard our financial futures.
A report by the Economic Times disclosed that 2 out of 5 Indians do not invest for their retirement. These figures depict that 40% of the Indians didn’t do anything to secure their lives financially after retirement. However, they should realize that having a robust retirement plan in place is more than important to enjoying a stress-free life during the golden years.
If you are also one of them, or if you started investing in a retirement plan, it’s a good idea to understand the importance of retirement planning. Continue reading to further explore the ins and outs of retirement planning and how you can leverage it for your benefit.
What is Retirement Planning?
It is a non-negotiable necessity for people around the world to save and invest for their future needs so that they have a considerable amount in hand when they retire. In those days when you were earning, it did not seem that urgent, however delaying it can lead to an uncertain financial future once you hang your boots.
Retirement Planning is a gradual process that involves the evaluation of your financial objectives, risk profile, current income, and expenses, and then preparing an investment strategy that can help you meet your financial goals in those golden years.
Indians prefer pension schemes like EPF (Employee Provident Fund) or NPS (National Pension System) along with fixed deposits, real estate, and mutual funds to include in their retirement planning strategy. While planning for your retirement, it is important to take your lifestyle, anticipated retirement age, and medical expenses into consideration.
Why is it important to plan for your retirement?
Wondering why retirement planning is crucial. Let’s delve into some key reasons why you should plan for it.
1. Prepare for medical emergencies.
With the passage of time, the frequency and cost of medical bills rise which further leads to unexpected expenses. To deal with such hardships in the older age, one needs a well-planned retirement corpus that offers liquidity to manage hospital bills and treatment costs. Therefore, having a well-managed retirement fund in hand allows you to focus on your health without having any financial worries.
2. Fight Inflation
Inflation refers to the interest rate at which the cost of goods and services increases over time which further diminishes the purchasing power of money. Therefore, one should plan after considering the impact of inflation on their cost of living after retirement.
Assuming an inflation rate of 5% throughout will double your cost of living in 14 years. This leads to thinking and planning cautiously because if you are planning to retire after 20 from now then you will need more than double what you require now to maintain your standard of living.
3. Leave a legacy
Apart from the above two, retirement planning allows you to leave a legacy for your loved ones. The wealth you have accumulated through your retirement planning strategy can also be passed on to your sons and daughters if you don’t use that amount.
Also, you can use that wealth to fund or support a charitable cause, making a difference for society and the people around you.
4. Maintain your standard of living.
After hanging up your work boots, you also need to maintain your standard of living, and retirement planning will help you with that. Planning for retirement involves identifying your retirement goals, evaluating your expenses, and building a plan to stockpile sufficient savings to meet those goals.
Furthermore, one can leverage those stockpiled amounts to generate a regular source of income and maintain their standard of living.
5. Be emergency-ready
Life after retirement isn’t solely filled with sunny skies and leisurely moments. Unexpected spending like medical emergencies or home repairs, can ruin all your financial securities. Therefore, accumulating a retirement corpus specifically for retirement is of utmost importance to face these after-retirement hardships effectively.
How does retirement planning work?
Retirement planning typically involves steady contributions during your working years in particular selected investment schemes like mutual funds, to build a corpus amount. Post-retirement, you will receive the payouts in the form of a lump sum, regular income, or both.
Additionally, these plans come with tax benefits while you’re building your fund. That’s not all—some even include life insurance as well. Because it ensures your family stays financially secure, no matter what life throws your way. It’s about planning today to protect tomorrow.
How much do you need to retire?
Everyone’s retirement amount is quite personal, depending on their financial needs and wants after retirement.
In an ideal situation, one should start saving and investing for their retirement as early as possible to enjoy those golden years with leisure. Starting early helps in building a retirement corpus that safeguards your as well as your children’s future in the long run.
The amount depends on these factors:
- Medical Expenses
- Anticipated Lifespan
- Lifestyle
- Inflation
The most common guideline followed all over the world for calculating the amount is the 30X rule. This rule suggests that one should have at least 30 times their yearly income saved for retirement purposes. However, this rule simply does not apply to everyone out there.
For instance, if your annual expenses are INR 8,00,000 and you plan to retire at the age of 60. Let’s suppose you expect to live until 80 while maintaining your present lifestyle. Here’s what your estimated retirement corpus would look like:
Estimated Retirement Corpus:
30 X INR 8,00,000 = INR 2,40,00,000
This is the amount you would need to support your current lifestyle post-retirement. Lastly, after adjusting the inflation, which is about 6 to 7% annually, you would also need to enhance your savings every year.
Best Investment Options for Retirement Planning in India
Here is a list of some of the best investment options for retirement planning in India:
1. Fixed Income Investments
Looking for steady returns without too much risk? Fixed-income options might be your best bet. While planning for retirement, think of them as a reliable friend for your money. They include things like corporate bonds, SDI (securitized debt instruments), and government-backed schemes.
Corporate bonds are basically loans you give to companies. In return, they pay you a fixed interest rate—pretty straightforward, right? Then there are SDIs. These bundle together different debt obligations, offering you stable returns with just a touch of risk.
If you’re someone who likes to play it safe while still growing your money, these options are worth exploring. Sounds good? Now let’s explore the next investment option.
2. Mutual Funds
Mutual funds are a great pick for retirement planning, especially equity-oriented ones for long-term growth. They let you dive into a mix of stocks, bonds, or both, spreading your investments to balance risk and reward. Perfect for customizing your portfolio to match your goals—steady, smart, and built for the future!
3. Public Provident Fund
The PPF is a government-backed savings plan with a 15-year lock-in period. It comes with great interest rates, tax-free returns, and the safety of sovereign guarantees. Perfect for building a secure, worry-free retirement fund!
Factors to consider while planning for retirement
If you are not a finance expert, there are several things that might go wrong while planning for those golden years of retirement. Listed below are a few factors that you must keep in mind without fail:
1. Investment Strategy
One should carefully choose to include investment options in their strategy that align with their risk tolerance and investment horizon. It is further recommended that you start your investment with higher-risk options like fixed deposits and bonds as you approach retirement.
2. Debt Management
Entering retirement debt-free is crucial—it protects your savings and further brings peace of mind. Make sure to clear all loans and credit card balances beforehand. A clean financial slate means a stress-free, secure retirement!
3. Tax benefits and liabilities
Retirement investment options like NPS, EPF, or PPF come with tax benefits, so don’t fail to take advantage of such benefits. This helps you save more of your hard-earned money by leveraging various benefits that come under senior citizen schemes. At the same time, one should also be mindful of the tax implications that apply to withdrawals and payouts post-retirement.
Conclusion
Retirement planning isn’t just an option—it’s a necessity. Starting early gives you the power to build a secure, stress-free future. Don’t wait for tomorrow; take small steps today. Whether it’s investing in mutual funds, PPF, or clearing debts, every action counts. Remember, it’s not about rushing but making smart, informed choices. Your golden years deserve to be just that—golden. So, what’s your first move toward a worry-free retirement?
Related Topics
- Difference between tariff and non-tariff barriers
-
Why multi-asset funds are your best bet amid market fluctuations?
