Planning for a life after retirement is important as life expectancy has increased but the working years have not. In order to enjoy a comfortable life with financial security even after retirement, you need to plan in advance.
Why is Retirement planning important?
Unlike most other countries, India does not have social security system for retired people. The pensions provided are not adequate to live comfortably after retirement with the cost of living having increased manifold. In these changing times, it has become important that you make your own provisions for your needs.
Moreover, there are several reasons why working individuals need to secure their future against unforeseen emergencies e.g. uncertainties in personal and professional life, falling interest rates, high inflation, the growing trends of VRS and rising health risks.
Although compulsory savings in provident fund and family pension funds through both employee and employer contributions and gratuity is available, it may not be enough to support you throughout your retired life. That is why retirement planning is extremely important for everyone.
How to Plan for Your Retirement
It is never too early to plan for retirement, as we all want to maintain the same standard of living as long as we live.
For illustration, let us assume that you are 35 years old and earning Rs.3 lacs per annum. Your salary grows at 5% per annum and you plan to retire at 60. Assuming that your retirement needs would be 60% of your last annual income (Rs.10 lacs approx.), you would need about Rs.6 lacs per annum after retirement. To achieve this, you need a retirement corpus of Rs.75 lacs assuming you earn a return of 5% per annum over a period of 20 years. To meet this goal, you would have to invest more than Rs.9,000 per month at 7% per annum for the next 25 years. Inflation and tax implications have not been considered.
Post-retirement financial independence is important & to achieve it, you need to do the following:
Plan your Retirement: Make a plan for savings now based on your needs after retirement. This will directly depend on the standard of living you wish to maintain.
Know the available pension plans: Understand the benefits of the compulsory plans you are entitled and get in your office. These plans are generally tax efficient.
Start a regular and early saving habit: The pension and gratuity you will get after retirement is not enough as today’s cost of living has increased manifold. Regular saving in a systematic manner and with the power of compounding can increase your investments into a handsome amount. Systematic investment is the wisest form of savings. Remember the early bird catches the worm.
Diversify your investments: Ensure to spread your money in different investment avenues. Use Cash, Debt and Equity options simultaneously. This, of course, generally, has a direct link with your age and risk bearing capacity.
Saving and investing regularly will helps you to fulfill your dreams. Start planning for your retirement today.
