Retirement is a boring topic for those who are decades away from it. But ask those who are about to retire in a few years and they will regret not starting early with retirement planning/
Don’t get me wrong here. Retirement savings do take a backseat when you are younger and have several other important goals (like a house purchase, children’s education, etc.) on your mind. But sooner or later, retirement will come. It’s a non-negotiable. And hence, it should get a lot more priority than many of us give to it.
If that doesn’t convince you, then remember two things:
- You can easily get loans for all other goals. But you will never get a loan for your retirement; and
- It is best not to consider your children as your retirement plan. They will have their own retirements to plan for. So you wouldn’t want to become a burden on them.
I am sure all of us have distinct needs and goals when it comes to our post-retirement years. But, regardless of our goals and wishes, it is essential to plan for our retirement so that we may live a financially sound retired life and meet our daily living expenses without difficulty.
Many of you already make ‘mandatory’ provident fund contributions every month from your paycheques. But that alone will not be sufficient for retirement. And I am not going to beat around the bush here. Your PF corpus will be insufficient to fund your retirement. You may like it or not but you will have to make additional investments towards retirement.
What is a Retirement Plan?
Retirement planning is the process of first defining your post-retirement income objectives and then, investing properly to achieve those objectives. Retirement planning has been called the nastiest problem in finance for a reason. And a majority of the people have no idea how to find out what is their retirement target corpus. If that is the case, it’s best to take professional investment advice.
And although retirement planning is a long-term process, it works best if you begin planning for it as soon as possible. If a person intends to spend (let’s say) 70-75% of their pre-retirement earnings for post-retirement, it is critical to begin saving at an early age. Furthermore, in addition to saving, it is necessary to invest in the correct tool to increase your cash and develop wealth over time.
Benefits of Retirement Planning
There are various perks to starting retirement planning slightly earlier in life that you should not ignore. When you keep a clear goal in mind, you may build a habit of investing money effectively for tomorrow.
It’s normal that you’d rather spend than save while you’re younger. However, the advantages of retirement planning can assist put things into context in the long term.
One of the key perks of a retirement plan in your young days is that you may stretch your cash over a longer period of time. In that manner, you won’t be burdened by the financial strain of saving faster as you approach retirement age. Another advantage of early retirement planning is the ability to pick your retirement age at your leisure. I am sure you have heard of the FIRE concept or Financial Independence & Early Retirement idea that many people these days aim for.
Related Reading – Super-detailed post on Financial Independence and Retiring Early (F.I.R.E.). If you are planning for early retirement in India, do read this post.
The following are the primary advantages of retirement planning:
- Stress-free Peaceful life – When you think of having a good financial future after your retirement, you may consider all possible ways to feasible financial plans to take the stress out of your head. You analyze your present resources, find gaps, and try to accumulate the necessary financial backup. A systematic technique like this assures a safe future, giving you assured financial stableness even when your regular active income resources cease. And you feel so relaxed when you know you are taking the appropriate steps to avoid financial troubles in your older years in life. You can easily determine how much you can save for retirement by employing a retirement planning calculator or by taking the help of financial planners. After several years of struggle, you may finally relax and enjoy life. It not only eliminates difficulties in your post-retirement years, but it also eliminates stress in the years preceding them.
- Better Financial Backup in Present & Future – When you are in a situation where you cannot earn an income further, the unpredictability of life might be unpleasant. The capability to plan for such catastrophes is one of the most essential benefits a properly implemented retirement plan offers. By generating a large retirement corpus, you may ensure that you and your spouse are protected in the case of a financial disaster. These benefits of retirement preparation will also assist you when you approach your older years. In the case of a catastrophe, you may be able to rely on your money to meet your future financial responsibilities.
- Your money begins to work for you – Everyone works in order to earn money and establish a better lifestyle. However, retirement years are when an individual is no longer working. As a result, this is the point at which the money created should be used to complete all of the responsibilities. To accomplish this, one must start investing for retirement at a young age. Starting little also helps to generate great future earnings. As a result, a retirement policy must be a well thought sthrough plan that can generate reliable levels of earnings during the entire post-retirement life.
- Tax benefits – Retirement planning should also consider taxation and how to lower the taxes you may have to pay after retiring and guaranteeing that dependents to pension and other account forms pay the least amount of tax feasible. Tax diversification is a prudent course of action. This entails establishing several pools of money in taxable, tax-free, and tax-deferred accounts. These several accounts enable income to be systematically pulled from a number of sources throughout retirement, based on future situations.
How to plan your retirement?
When someone plans for retirement, then there are basically two stages. One is the accumulation stage and another is the distribution stage:
- During the accumulation stage, you start investing to accumulate the retirement corpus. This investment is based on the time horizon of the goal and the asset allocation you prefer.
- During the distribution stage, you start to withdraw from the accumulated corpus.
Individuals must begin planning for retirement as soon as they begin working. Establishing retirement savings early in life will aid in the accumulation of a substantially large retirement corpus. Furthermore, it lessens the strain on people as they approach retirement age.
People sometimes put off retirement planning because they believe it will be 30 years away. However, planning for retirement in the early years of life, when financial obligations are limited, reduces the pressure of saving more for it later.
When to Start Retirement Planning?
Even though there is no fixed age at which to begin retirement planning, it performs best when a person begins planning for it from the starting. The finest retirement policies are usually initiated at a young age when the typical working life is around 30 and 35 years. This indicates that if retirement planning is handled well, one may readily enjoy its benefits of it after retiring.
Most people seem to have an excuse as to why they do not want to plan their retirement. And by the time they realize, it’s already a little late but mostly workable.
As for you – begin now if you still haven’t.
So to answer the question as to at what age should you start saving for retirement?
The answer is the earlier the better!
The early start to saving for retirement will benefit from compounding over the long investment period
Importance of Retirement Planning
Retirement planning is ensuring that you have a consistent source of revenue when your pay ends, in other words, after retirement. That said, even life insurance is essential in keeping a retirement plan on track for the family. For most individuals, retirement planning entails safeguarding their own and their family members’ financial futures. Even if one begins to save or invest, the chance of untimely death always persists.
But let me remind you that retirement planning is not a one-time activity. You need to adopt a dynamic, non-static approach to retirement investment and if need be, adjust as you move ahead.
Retirement planning isn’t just for the employees about to retire in a few years or for the new employees. You may or may not realize it but it’s for everyone. With proper planning, you can establish your financial security in later decades of life.
Just remember that retirement is not optional. You have to retire eventually. And it’s possible that many people might be forced to retire due to various reasons. A case of involuntary early retirement.
So don’t keep giving excuses to delay starting your retirement planning in India (2023).
Article is useful for professionals and salaried employees retiring from private jobs. Since these people do not have any pension benefits like Government, Semi-Government, Banks, PSU, School and College teachers and professors, they defintely need to start investing right from the age of 25 years onwards for their retirement.
Since real returns in develping nations will remain mostly negative for quite some time in future, one must invest to generate income post retirement, which can give atleast 2% to 3% real returns (after inflation of about 7% to 8%). This will require one to invest in assets which can generate at least 10% to 12% returns in the long run. This may look simple considering that, SENSEX has generated about 12% CAGR in past two decades, but not easy. It requires lot of patience, calibrated planning and keeping close watch on your retirement corpus.