Retirement is the time of life when you like to spend time doing things that you may have missed during your hectic working years. Let us discuss what is retirement plan and its importance in this post.
When we talk about the financial stages in an individual’s life, it goes through three main phases. They are:
- Your childhood stage when you do not earn any money. Rather you pursue your education to build the base for a strong and prosperous career ahead
- In the second stage you are an adult with a lot of energy. It is the time when you start your career with full enthusiasm with the aim to accumulate wealth for future
- The final stage is when your retired life starts. In this stage, most of you do not earn and thus your source of regular income might cease to come
Normally, people in the last stage get money from their passive incomes that they have accumulated in their young age in the form of assets and wealth. Here, Life Insurance plans, retirement plans and other forms of investments contribute. All such investments ensure that the retired individual enjoys a peaceful life without any financial crisis.
Since we work hard throughout our lives, it is always good to get retired as early in life with maximum assets to generate wealth. This way, you can lead a life without any compromises due to lack of money.
What is a Retirement plan?
Retirement Plans are investments which help individuals to build funds for their retired life by accumulating wealth and by investing/saving from their earnings. The retirement plans ensure a steady income source to the investor after he/she retires. These plans are offered by insurance companies which can be explored by individuals to acquire the best pension plan in India. Along with retirement plans, you can also explore the various Life Insurance plans that allow long term income to the investor and serve the purpose of your regular income post retirement.
Why is it Important to Plan Retirement?
Why is retirement planning important? This is a very basic question that we all should know and understand before starting to plan your retirement. Planning for retirement is important because it ensures a financially secured life to individuals after their regular income in the form of their salary ceases to come. At the same time, it is also noteworthy to explore the various aspects of life that you would need money for once you are retired. Simply accumulating or investing in a fund might not get you the desired result. Hence, you have to look at your lifestyle, your current expenses etc. to come to a conclusion about the kind of expense that you would require to survive well in the future when you retire.
So, if you have already planned accordingly for your retirement, it is wonderful. But if you haven’t, it is time to take action and prepare for a worriless future.
Here’s some reasons why retirement planning is important and why you should take immediate action about it:
- Retirement plans allow individuals to save for your old age in a disciplined way
- Retirement plans are easily affordable and secure for saving for your future
- With after retirement plans, you can ensure a fixed and stable regular income on monthly basis so that all your post-retirement needs can be taken care of
- Retirement plans ensure financial independence for your future and give you mental peace while lowering your anxiety
- With financial independence, you can enhance your decision making powers even after retirement
Read More: How You Can Plan Your Retirement With Life Insurance?
How to Plan for retirement?
Let us understand how to plan for retirement in India with the help of the below steps:
1. Decide your Retirement age – It totally varies from person to person as to when they want to retire from work. Though 60 years is considered the retirement age in India, it depends on the person when he/she feels like retiring. So, you have to plan for retirement depending on the years that are remaining till you retire. If you plan to retire at the age of 65 and you are 35 at the moment, you have 30 years to plan your retirement.
2. Life Expectancy – Life expectancy is indeed a significant factor to consider for determining retirement age. However, it may not be possible to estimate exactly how long you are going to live. However, depending on your medical conditions and age as well as family history, you can roughly estimate the approximate years and plan your retirement accordingly.
3. Calculate Required Retirement Fund – The amount you would require to meet your monetary needs post retirement is your retirement fund. This fund should be enough to meet your needs as well as continue your lifestyle and fulfill your goals. To Calculate the same, you have to find out your present expenses per month and calculate the amount post retirement while keeping in view the rate of inflation. For instance, suppose you are a 32 year old male who spends around INR 75,000 on monthly expenses and INR 5 lakh in travel, leisure and medical expenses. Now, for post retirement expenses, you have to take into account an inflation of over 7% in household expenses and 10% in travel and medical expenses per year. Suppose your retirement fund is likely to earn 6% per annum. So, it means you would need around 22 Crore by the age of 60 to meet your expenses.
4. Estimate the Future Value of Present Savings – When it comes to saving for your future, it is important to assign a portion of your money every year for retirement. This amount should be kept separately and shouldn’t be touched unless any extremely critical situation arises. Now, to estimate the value of your savings in the future, you have to presume a rate of return on the amount you have saved for the future. Your savings are likely to grow at this rate until you retire. For instance, if you save INR 1 lakh per year in a policy that gives 7% ROI annually, you can save INR 1 crore in 30 years.
5. Take assistance from a Financial Planner to build an Investment Portfolio – Depending on the risk factor you are willing to take and your age, your investment portfolio could be created to invest in diverse asset types. You can take assistance on financial planning for retirement in India to make a better portfolio.
6. Investing from Early Age to Retire Worry-free – It is important to plan your retirement early on in life so that you have many years in hand to avail the advantage of compounding interest on investment. For instance, suppose you are planning to build a corpus of INR 1 Crore for retirement. Now, if your return on investment is likely to generate 7% interest per year, you need to save for a particular number of years to reach the target fund as mentioned below.
|Years Remaining for Retirement||Saving Required Per Year|
|10 years||INR 6,76,425|
|20 years||INR 2,27,971|
|30 years||INR 98,938|
7. Track Your Investment Portfolio and Review regularly – It is necessary to monitor your retirement fund on a regular basis to ensure that you are on track and would meet your goals easily.
To Sum Up
From the above discussion, you know the retirement plan meaning as well as its importance. Buying a retirement investment plan is the most vital thing towards augmenting your wealth creation for your retired life. Similar to term insurance plans which support families after the demise of the head earning member and health insurance plans that support individuals against health related expenses, retirement plans support pensioners with regular income after retirement.
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