Why You Need a Solid Retirement Plan and How to Get Started Early


United Nations estimates that the global population of people over 60 years will double to 2 billion between 2020 and 2050. In the past 50 years, India has experienced almost a tripling of the population over 60 years. On top of that, a devastating pandemic should have nudged the population towards 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 retirement, this is either because they haven’t begun retirement planning yet, or they believe that their current and future savings can be used for retirement, according to a recent survey.

Essentially, a great retirement plan’s objective is to guarantee that you’ll have enough money to sustain or enhance your lifestyle during your golden years. If you want to travel, purchase or sustain your current lifestyle after retirement, you’ll need to allocate more funds in a systematic and disciplined manner. However, understanding and making oneself aware of the basics of retirement planning is the first step.

Why planning for retirement is essential?

Retirement preparation does not imply that you should solely focus on your finances. Retirement planning entails both financial and personal considerations. One’s retirement satisfaction is determined by personal planning. Financial planning, on the other hand, aids in the management of income and expenditure based on an individual’s strategy.

Personal planning is essentially focused on “how would you like to spend your retirement?” It will be easier to determine the financial demands if you have a vision of life after retirement. The lifestyle requirements and preferences will support budgeting. As a result, financial planning will aid in the establishment of a retirement fund. The following are some of the primary reasons why retirement planning is so important:

• Working perpetually is not possible
• The life expectancy is improving
• Complications like medical emergencies are more likely to occur
• Need not count on anyone for your needs
• Even after retirement, you can contribute to the family
• Plan ahead of time and diversify your assets

The how’s of retirement planning

• Start retirement planning early: Begin planning for retirement as soon as you get employed. Establishing a retirement fund early in life will assist in the accumulation of a substantial endowment. People frequently put off retirement preparation because they believe it is years away. When financial commitments are limited, planning for retirement early in life helps alleviate the strain of doing so later.

• Determine your retirement perspective: Firstly, identifying when you wish to retire helps calculate your investing horizon. Once done, the next step is to figure out how many years you have till you retire. For example, a 25-year-old person intends to retire at 60 and budget for costs until 80 years. This person has a 35-year investing horizon and must ensure that the existing savings allow fulfilling the costs until 80 years of age.

• Calculate the expenses: The next stage is to calculate existing expenses. Costs involved in the education of kid(s) or loans need not be included in the calculation. One must always remember to reserve cash; having a medical expenditure contingency fund is essential throughout retirement. Medical costs can add up quickly once you reach retirement age.

• Select the most appropriate retirement plan: Making decisions about how much and where to save are essential components of retirement planning. While selecting a retirement plan, here are some important considerations to make:
• The rate of return on investment should be comparable to prevailing inflation; better if it beats it.
• Invest in a retirement plan which offers regular income that can take care of everyday needs.
• Don’t overlook the advantages of complementary savings.
• Make sure that your money is invested in an instrument that offers easy liquidity.
• Retirement investments should be flexible.

With higher life expectancy, COVID-19, an increase in nuclear families, and the absence of a social security system, the need for planning retirement is pertinent.

Rahul Talwar is the SVP & Chief Marketing Officer at Max Life Insurance​. The views expressed in this article are those of the author and do not represent the stand of this publication.

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