Whether you heard it or not, there has been a common saying about retirement: you live to inspire and retire before you expire. In other words, human life is not a straight line between birth and death; there is a lagging phase before death called retirement.

 

One day every one of us will have to experience the retirement phase in our lives. Unfortunately, most people enter this phase without much planning or forethought. Some people resort to retirement planning that will not provide sufficient funds to lead a comfortable old age phase of life. So, they put a limit on their expenditure and lead a life of frugality.

 

Although retirement planning is preparation and planning for the future, it needs to be discussed along with the present. Indeed, retirement is seen as ‘sitting back and watching the sunset’ but to ‘sit back’ comfortably, everyone needs a fallback plan that generates a revenue stream to lean on.

 

This article explains the common retirement planning mistakes and shows the importance of proper retirement planning and how to embrace your old age with no fear.    

 

Early Birds Get Extra Mileage

 

Most of us wait till we cross 60 years of age to start retirement planning, the prevailing attitude among the working class. So, naturally, the lifestyle of the people improves when they start earning. But the failure to plan for retirement causes a sudden drop in this improved lifestyle. So, the elderly retired people have to make compromises in their lifestyle.

 

Moreover, they are dependent on the existing pension institutions and schemes that lack proper retirement planning methods. In reality, retirement planning should be a more hands-on approach with a mixture of disciplined investment and spending habits.

 

Early birds get extra mileage in every endeavor, and retirement planning is not different. So start planning and investing for your retirement from the day you start earning. Now, let’s look at the importance of retirement planning step-by-step.

 

What’s Next After Your Work-Life?

 

Everyone knows that they can’t work and earn for their entire life. But, then, after retirement, you come out of the world of working and earning an income. Then obviously, a question arises in your mind: What next?

 

You may ask yourself: ‘What do I do to create a regular income to support myself and my family?’ Of course, you can save from what you earned. But savings have their own limitations. ‘An idiot with a plan can beat a genius without a plan,’ says Warren Buffet, a legendary investor. So, plan your retirement well. Financial markets provide excellent investment options such as equity, bonds, and mutual funds. You can invest in those instruments as per your risk appetite. Remember that ‘financial market investments are subject to market risks; read all scheme-related documents carefully.’

 

A Few Retirement Planning Ideas

 

Now you are aware of the importance of retirement planning, and here we list five retirement planning ideas that would help you in the process. 

 

1. Set Up A Retirement Fund

 

Do you have a retirement fund in place? Mainly, you wouldn’t. There is nothing to feel bad about because the case is the same with most Indians. However, if you lack a retirement fund, you have not considered your retirement planning yet. Pension funds or retirement funds allow individuals to set aside a portion of their income for retirement. These funds, an essential requirement for the elderly, are also as critical as the emergency fund. Creating a retirement fund also displays a high financial IQ of a person and motivates him to create an alternate revenue source.

 

2. A Tax Saver

 

Most people save for retirement funds without realizing that they are excellent tax-saving instruments. Creating a retirement fund at an early age adds to the benefits. If you begin putting money into your retirement fund from the day you start earning, it opens a door for tax saving at every corner.

 

3. Consider Inflation

 

It is a naked truth that inflation eats away your savings. Let’s take, as an example, the Fixed Deposit (FD) scheme, the traditional investment vehicle of Indians. The current highest interest rate of an FD in India is 6% per annum. With the prevailing 7.7% inflation rate, an FD fails to provide you with a return or profits.

 

This means that you should consider inflation while you plan for retirement. Therefore, you should calculate and invest in the right places that beat inflation rates and provide a consistent return when you cross 60 years of age.

 

4. Save Costs

 

Being young comes with several benefits. The prominent one among them is that you can save a lot of money out of your earnings for your retirement. For example, youngsters invite a lower insurance premium, and the amount goes up with age as a person’s health and mortality risk increases.

 

5. Smaller Chunks of Savings

 

Another advantage of starting early retirement planning is saving relatively smaller chunks of money to attain your retirement goal. Conversely, if you start late, you will have to make substantial savings for the same retirement goal.

 

Let’s make it clear by a simple calculation. To save ₹1200 in 12 months, you need to keep ₹100 per month, but how much the savings chunk would be if have to save the same amount in 6 months? It would be ₹200 per month, a 100% increase in your savings effort. Always relate this analogy to your retirement planning.

 

Retirement Planning: The Need of The Hour

 

According to a recent Economic Times report, nearly 80% of Indians don’t plan for retirement. The report also states that about 60% of urban class Indians spend most of their income rather than saving or investing.

 

India still doesn’t have a solid social security system, mainly to provide retirement benefits for its elderly population. In addition, government-sponsored pension funds and Employees’ Provident Funds (EPFs) might not be enough to provide inflating beating returns. Therefore, in short, retirement planning is the need of the hour.

 

Justin Raj

 

Alpha Research