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A beginner’s guide to retirement planning.

Investment Retirement Planning

A beginner’s guide to retirement planning.

Retirement planning is an investment that can be very easy to put-off for the moment. While some people think that it is too early to think about retirement, others think that there are more urgent requirements which need attention. Unfortunately, such excuses can quickly develop into a harmful habit, which can hamper your post-retirement life. With the average life expectancy and the cost of medical attention on a constant rise, it is imperative for people to put a retirement plan in action as soon as possible.

What is Retirement Planning?

Retirement planning is essentially the preparation for a steady and comfortable standard of life post retirement. To achieve this goal, financially-sound decisions need to be made, to make smart investments that would ultimately yield a fortune after a long tenure. This can be done by analysing one’s current financial state and identifying investment avenues that will meet the post-retirement financial goals.

Benefits of Retirement Planning

Although allocating a part of your funds towards retirement planning can be a difficult decision to make, here are some benefits that cannot be overlooked:

  • Steady Source of Income
    The period after your retirement can be a stressful stage to support yourself financially. Retirement planning ensures that you have a sizeable corpus when you reach 60, that can provide you with a steady source of income. This brings about a mental state of peace as there is not much reason to worry about managing finances.
  • Tax Benefits
    A major bonus of retirement planning is the tax benefits that come with it. Many investment options like PPF, voluntary contribution to employee provident fund, NPS, equity linked savings scheme and unit linked insurance plans come with tax benefits as the government wishes to encourage savings for the long term.
  • Sensible usage of money
    Having a plan for retirement can influence the financial choices you make every day. These choices could save you a lot of money that would otherwise not be put to good use. For example, when you have retirement planning as a major financial goal, you would be more likely to put a good part of your annual bonus into an investment option, rather than splurge on a fancy gadget that would become obsolete 2 years down the line.

Tips for Retirement Planning

To avoid having regrets at a later stage in your life, you can ensure that you consider the following tips:

  • Start Early
    Ideally, you should start planning for your retirement from the time you receive your first pay-cheque. However, if you have not done so, then the next best option is now!

    To enjoy a happy retired life, you must carefully devise a financial planning strategy involving investments and savings that can meet your financial demands post-retirement. Hence the sooner you start-off with your retirement plans, the better you gain financially  – because the invested money has a longer period available to compound. More importantly, if you make a habit of saving early, then it will be much easier to save more once your income increases.

  • Prepare for Contingency
    Some people fail to realise when they are young that once they have retired from work, they will fall into the category of ‘non-income generating’ population. Hence, while we may be able to take care of our financial emergencies now by taking a bank loan, salary advance or any other source of credit, getting credit post-retirement becomes tougher. Your retirement fund should be able to take care of your daily expenses, and also allow a cushion for contingencies like medical emergencies. Keep in mind factors crucial factors like inflation and continuous changes in lifestyle when you decide how much to save. Instead of parking funds in your bank savings account where you earn about 3.5 to 4% interest annually, it could be beneficial to invest them in liquid mutual fund schemes where the returns can be significantly better. See how you can invest online now!
  • Beat the Inflation
    Inflation is one thing which affects everyone’s finances. Although regular pay rises can help to mitigate this to an extent, in this day and age, it is not sufficient to completely neutralise the issue. Hence, smart investing has become somewhat of a necessity. It is not uncommon to hear people say that they want to accumulate a certain sum at a certain point in time in the future and retire happily. However, many do not realise that although that sum may seem sufficient under present market conditions, in the future, it may not be enough if inflation is not included. Another thing that many miss when planning for a retirement plan is the post-retirement inflation, about which we will discuss more in the following point.
  • Plan for a Long Life
    The advancements in medical facilities and technologies mean that the life expectancy will be higher in the future. Hence, you should plan for your retirement accordingly. To ensure that you don’t spend even a portion of your retired life living frugally, you should plan for a long retired life. Your investment amount today should be such that it can help you sustain a comfortable life for at least 20 to 25 years post-retirement. Find out more with our retirement calculator.

    Here too, inflation calculation comes into play. Many people factor inflation only during their working years but miss out on the post-retirement years. If you are planning for 20 years in retirement, then it is imperative that you take into account inflation during the retired duration too.

  • Special Focus on Medical Expenses
    As people during their working life typically do not suffer from regular illnesses, a majority of the people tend to underestimate the medical expenses of post-retirement life. During old age, these expenses are inevitable for most; hence, more provision than what you expect now, should be allocated towards it. You must consider not only the cost of your medical needs and history but also your family’s general health. You should be prepared for sudden emergencies and the class of hospitals that you may want to get treatments in.This is why medical insurance must be included in your retirement planning. You must consider all factors and opt for a medical insurance plan that is all-inclusive. Apart from the medical insurance, you should also save for a reserve for ongoing medical and non-claimable medical expenses (like cost of OTC drugs, routine consultations etc). Check out some of the most comprehensive medical insurance plans that we bring from our partners now!
  • Plan for Your Loved Ones
    If you have dependents like your spouse or children, then there is a good possibility that they would outlive you. It is, therefore, your responsibility to ensure their financial security even in your absence. You should consider their future when planning for your retirement. During the planning phase, you may consider how many years your dependents may outlive you and based on that you can plan for a provision accordingly. For this purpose, whole life insurance policies can prove to be handy. Check out life insurance policies from our partners to ensure your family’s financial security!
  • Be Aware of the Sources of Retirement Income
    You need to be aware of retirement benefits such as provident fund, gratuity and similar benefits. The dearth of post-retirement social security schemes in India makes it necessary that you invest significant amounts in good income-generating sources to ensure a steady flow of income after retirement. Additionally, reading various financial blogs pertaining to retirement planning and finding information from other sources can help you plan your finances better.For better accountability, it is wise to create a checklist of the post-retirement income that you expect from various sources. You can also add the periodicity of the mentioned incomes. Careful analysis is required to have a good understanding of the tax implications for the various income streams mentioned in the checklist. You should then look for possible ways to liquidate them or if you could get a loan from any of these schemes.
  • Pick Investment Products that offer good Benefits
    There are a host of investment products in the market to choose from today. However, you need to be very careful when choosing the most suitable one for yourself. Look for products that offer good benefits like potential for good capital appreciation, tax benefits, flexibility to invest and withdraw when needed.

    Retirement planning is useful not only for the purpose of a stress-free retired life but it can also help you in case of financial emergencies. If you have a stable plan in action, then it could prove to be helpful in case you lose a job, suffer from a major illness or other personal emergencies. Hence, under the prevailing volatile conditions, it is best to start-off planning and executing a retirement as early as possible!


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