What is the Purpose of Retirement Planning?
Growing elderly can be costly. While unnecessary spending may go down, medical costs will go up. Stress and worry will result in not having enough money to cover future needs. The goal of a retirement investment plan is to provide financial security in your later years without relying on others.
The most important reasons for having a Retirement Plan
Here are the Top Four Justifications for why everyone needs a Retirement Account:
- The Absence of a Social Retirement Benefit
A social security system with retirement benefits for its elderly population has not yet come to India. Although pensions and employee provident funds exist, they may not cover all expenses. That is why establishing a diversified retirement fund comprised of fixed-income and mutual fund investments is critical.
- Financial Independence
Young people are increasingly becoming self-sufficient. They are frequently unable to assist their parents financially. Even if they can, being responsible for yourself allows you to live life on your terms because you will not be held accountable to anybody else.
- Costs are Rising(Inflation)
As an investor, you must consider rising costs. You could have to lower your living standard- If you cannot keep up with rising costs.
- Urgent Medical Needs
Understanding the value of retirement planning depends on healthcare costs. While retail prices continue to rise slowly, healthcare costs are rising at an alarming rate. When other financial goals can be a sacrifice, health cannot.
How do you Prepare for Retirement?
The Easy steps are as Follows:
1. Make a list of Your Estimated Expenses:
List your expenses in order of importance and go over them one by one. You may not have a consistent paycheck, but you can live your post-retirement life exactly how you choose. Whether it’s your daughter’s destination wedding, a global tour with your wife, purchasing a beach house, or running your organic farm, there’s something for everyone. If you plan ahead of time, you may save for each of these indulgences. Make a schedule for all such events. Make a budget for each expense.
2. Establish a Reserve Fund:
Don’t let unforeseen costs drain your bank account! Planning for such events, such as unforeseen circumstances, medical emergencies, or other events that you may not have anticipated, such unplanned circumstances can deplete your savings and ruin your planning. Having money set aside for such a period, which may or may not happen to you, is a wise decision.
3. Extend Your Investment Horizon, Don’t be Afraid of Equity:
Keeping your money in low-risk assets will protect it but not help it expand to meet your needs. Inflation is one of the risks to your retirement fund since it consumes your savings at an increasing rate. To combat inflation and speed up your returns, it is preferable to invest in stock instruments.
4. The Golden rule—Begin Early:
The earlier you start, the larger your corpus may get.
Begin investing sooner to allow your savings to grow over a long period. Consider equal importance to your retirement and your current financial demands & start saving a small amount regularly.
The table below illustrates the importance of starting early. Investment Amount: INR 10,000/- monthly anticipated @ 10% p.a return
| Starting age | 25 | 35 | 45 |
| Age of retirement | 60 | 60 | 60 |
| Time until retirement | 35 | 25 | 15 |
| Total investment | 4200000 | 3000000 | 1800000 |
| Retirement corpus | 38282767 | 13378903 | 4179243 |
5. Do not Withdraw from Your Retirement Account in Between:
Avoid the temptation to dip into your retirement fund.
Summary
Everyone’s financial strategy must include retirement planning without exception. Though we cannot predict the future, already prepared can be beneficial. Invest in mutual funds, fixed-income securities, and other government securities to diversify your retirement portfolio. Begin as soon as possible to ensure a stress-free later life.