What is retirement planning?
Retirement planning is the process of planning and managing your short and long-term finances to help achieve your financial dreams both during your working years and retired life. It involves analyzing your financial objectives, current financial position and expected future cash flow to develop a comprehensive retirement roadmap.
Why is retirement planning required?
Without a judicious retirement plan in place you run the risk of outliving your savings and not being able to maintain the desired lifestyle in your retirement years. You also run the risk of not being able to accumulate enough corpus for your dependants owing to unfortunate and uncertain events like death, disability etc.
Retirement planning helps you determine how much to save today for retirement; how to invest your savings to get the desired returns; how to protect your assets and provide for in case of unfortunate events and how to make judicious use of retirement income post retirement.
What are the benefits of Retirement Planning?
Retirement planning helps you maintain your desired lifestyle during old age. It helps you plan for key life stage events leading upto retirement. It provides financial security to you and your dependents by enabling you to make prudent investments during your working years. It also enables you to make the best use of your hard-earned money post retirement. One of the key benefits of effective retirement planning is to cover for any contingencies arising from uncertain events which can compromise your ability to meet your financial goals.
What are the types of needs and life-events to plan for?
There are various kinds of needs and life-events, some of which are listed below:
- Buying a Home
- Job Transition
- Children’s Education
- Children’s Marriage
- Retirement Corpus
- Post Retirement payout
- Tax planning
Is retirement planning relevant in India?
With looming demographic challenges, India faces a swelling non-working elderly population. Further, as the life expectancy of Indians increases, the number of years in retirement is also expected to increase requiring you to fund a longer retired life. Also, with the joint-family system making way for the nuclear family system, self-support during non-working years is the new world order. Rising costs for health care and other essentials means you need to save and invest that much more and with proper planning. Therefore, a planned approach to retirement is essential.
How is retirement planning different in the Indian context?
In the Indian context retirement can only be achieved after a person has fulfilled his responsibilities towards his family (child’s education, marriage etc.). Therefore, retirement planning is not only about planning for a secured and financially independent retirement but also entails planning for key life-stage goals. It also necessitates providing protection against unforeseen events so that achieving these goals does not become a challenge.
What is the process of Retirement Planning?
Retirement planning is not an art but a definitive science which requires taking a 360 degree approach to studying 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: Analyzing 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 essential to seek expert / professional advice and create a comprehensive roadmap based on the different stages of your life to meet your financial requirements.
How is Retirement Planning different from Financial Planning?
Financial planning is a process of setting objectives vis-à-vis your current income. It involves assessing your currents savings and assets, estimating future financial needs, and making plans to achieve monetary goals. Retirement Planning goes beyond financial planning or providing investment advice and is aimed at achieving financial security for retirement. It is a holistic solution aimed at enabling people to achieve their financial dreams both before and after retirement.
When is the right time to retire?
There is no right time for retirement. Deciding whether or not to retire is a decision that only you can take. If your financial situation, health, age and feelings about your job all point towards retirement, it’s time to call it a day. Ideally you should work as long as you can. Based on individual requirements, financial stability and liabilities, you should plan your retirement accordingly.
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?
The early bird catches the worm. Starting late with retirement planning poses many difficulties for creating a strong corpus and sufficient wealth to see you through retirement. However, the good news is that it’s never too late to start. If you are late, all is not lost and you can cover for lost ground. You can take the following measures to make up for starting late:
- Cut down expenses.
- Seek 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.
- It is good to have a working spouse to generate an additional income stream.
- Look for additional income through another job / business simultaneously if possible.
- Start immediately.