Why You Need a Solid Retirement Plan and How to Start Early

The United Nations estimates that the world’s population of people over the age of 60 double to 2 billion between 2020 and 2050. Over the past 50 years, India has experienced almost a triple of the population over 60. On top of that, a devastating pandemic should have pushed people into long-term financial thinking, yet only 47% of urban Indians are investing for retirement for financial independence. For the majority who have not invested for their retirement, it is either because they have not yet started planning for their retirement, or because they believe that their current and future savings can be used for retirement. , according to a recent survey.

Essentially, the goal of a good retirement plan is to ensure that you will have enough money to maintain or improve your lifestyle during your golden years. If you want to travel, buy, or maintain your current lifestyle after retirement, you will need to allocate more funds in a systematic and disciplined way. However, understanding and being aware of the basics of retirement planning is the first step.

Why planning for retirement is essential?

Preparing for retirement doesn’t mean you have to focus only on your finances. Planning for retirement involves both financial and personal considerations. Retirement satisfaction is determined by personal planning. Financial planning, on the other hand, helps in managing income and expenses according to an individual’s strategy.

Personal planning is essentially about “how would you like to spend your retirement?” It will be easier to determine financial requirements if you have a vision for life after retirement. Lifestyle requirements and preferences will support budgeting. Therefore, financial planning will help establish a retirement fund. Here are some of the main reasons retirement planning is so important:

• Permanent work is not possible
• Life expectancy is improving
• Complications such as medical emergencies are more likely to occur
• Do not rely on anyone for your needs
• Even after retirement, you can contribute to the family
• Anticipate and diversify your assets

The how of retirement planning

• Start planning for your retirement early: Start planning for your retirement as soon as you get a job. Establishing a retirement fund early in life will help build up a substantial endowment. People often put off planning for retirement because they think it’s years away. When financial commitments are limited, planning for retirement early in life helps ease the pressure to do so later.

• Determine your retirement perspective: First of all, determining when you want to retire allows you to calculate your investment horizon. Once that’s done, the next step is to figure out how many years you have until you retire. For example, a 25-year-old intends to retire at age 60 and plan expenses until age 80. This person has an investment horizon of 35 years and must ensure that the existing savings can cover the costs up to 80 years.

• Calculate Expenses: The next step is to calculate existing expenses. Costs related to raising children or loans do not need to be included in the calculation. Always remember to set aside money; having a contingency fund for medical expenses is essential throughout retirement. Medical costs can add up quickly once you reach retirement age.

• Choose the most appropriate retirement plan: Deciding how much and where to save is an essential part of planning for retirement. When selecting a retirement plan, here are some important considerations to keep in mind:
• The rate of return on investment must be comparable to current inflation; better if it beats him.
• Invest in a retirement plan that provides regular income to meet day-to-day needs.
• Don’t overlook the benefits of additional savings.
• Make sure your money is invested in an instrument that offers easy liquidity.
• Retirement investments should be flexible.

With higher life expectancies, COVID-19, an increase in nuclear families, and the absence of a social security system, the need to plan for retirement is relevant.

Rahul Talwar is Senior Vice President and Chief Marketing Officer at Max Life Insurance. The opinions expressed in this article are those of the author and do not represent the position of this publication.

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