Retirement Planning

What is Retirement Planning?

Retirement planning is the process of setting retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk. It is an essential part of financial planning.

An increase in average life expectancy increases the need for retirement planning.

Planning for retirement not only ensures an additional source of income but also helps in dealing with medical emergencies, fulfil life aspirations and more importantly financially independent.

Why do you need retirement planning?

Retirement comes in everyone’s life, but before you get ready, you will be facing daily living expenses, grappling with medical costs, and fighting with rising inflation. There are always emergencies in old age. So, must have a sufficient retirement corpus to deal with all these is very crucial. Generally we lose track of a long-term goal unless we have planned retirement planning.

Following are the reasons why retirement planning is essential:

  • One cannot work forever.
  • Inflation risk.
  • The average life expectancy is increasing.
  • Medical emergencies in higher age.
  • Time to fulfill life aspirations.
  • Relying on pension or just any single source of income is risky.
  • Do not depend on children.

What is the process of Retirement Planning?

Retirement planning is not an art but definitive steps which requires holistic approach to study one’s current financial health, long-term goals and risk appetite to design a plan that addresses the retirement and other long-term goals of an individual.

It involves a step-by-step approach:
Step 1: Identifying your financial and retirement goals
Step 2: Analysing your current financial situation
Step 3: Risk Profiling
Step 4: Asset Allocation
Step 5: Investment Allocation Strategy
Step 6: Periodic Monitoring and Rebalancing
It is better to seek financial planner /advisor professional advice and create a comprehensive roadmap based on the different stages of your life to meet your financial requirements.

Why do I start early with my Retirement Planning?

It’s never too early to start. Wealth creation is a time-taking process and usually lasts throughout your lifetime. So the earlier you start the more time your money gets to multiply. By starting early with your retirement planning you can benefit from the power of compounding, manage the longevity risk and maximize your returns from high-risk and aggressive investments options.  It’s always wise to start saving early.

If  I start late, can I still plan my retirement?

Starting late with retirement planning poses few difficulties for creating a strong corpus and sufficient wealth to see you through retirement. However it’s never too late to start. You can take the following measures to make up for starting late:

  • Cut down expenses.
  • Seek financial expert advice / professional help to create a roadmap for you to maximize your savings without compromising your standard of living.
  • Choose investment options that give you higher returns.
  • Look for additional income , if possible.
  • Start immediately.

Retirement planning is ideally a life-long process. You can start at any time, but it works best if you factor it into your financial planning from the beginning.

Benefits of Retirement Planning

  • Stress-free life: This is the most significant outcome of retirement planning. Retirement planning helps to lead a peaceful and stress-free life. With having investments that earn regular income during retirement leads to a worry-free life. Retirement is the age where one has to relax and reap the benefits of all the hard work.
  • Money works for you: In the younger days, you works for money, so, it is the time when the money one earned should do all the work. To achieve this, one has to start their investments towards retirement at a very young age. Starting small also helps in generating significant returns in the future.
  • Tax benefits: Retirement planning also helps in tax saving. For example, investments in PPF and NPS qualify for tax exemption under Section 80C & 80D of the Income Tax Act. These are long term investments suitable for retirement ,at the same time also qualify for tax saving.
  • Cost-effective: Planning for retirement at a young age will help in reducing the cost. For example, in an insurance policy the premium amount to be paid will be lesser when the policyholder is younger. While getting insurance during retirement becomes costly.
  • Inflation beating returns: Investing in retirement will help in earning inflation-beating returns. Holding money in a bank savings account will not generate high returns. Therefore, proper investment planning will help one to generate significant returns in the long term. Also, it is important to start investing early. This helps in averaging out the impact of market volatility.

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