1) What is Retirement Planning?
Retirement planning focuses on setting retirement income goals to take care of your post retirement expenses with the help of accumulated funds.
2) Why is Retirement planning important?
Most of us know that we cannot work forever & have to retire. Retiring later is an alternative to increasing saving, but there is no certainty that appropriate employment will remain available. Not having employment leads to the risk of running out of money. So, you need to plan your post retirement income source in order to maintain your desired lifestyle during old age.
Having sufficient amount of money today cannot help you to maintain the same standard of living post retirement due to increase in inflation. With rise in inflation level if you have a savings account that yields lesser return than inflation rate, you’re technically losing money.
With increase in age, your body is more vulnerable and prone to diseases, and medical cost increases every year. As per a research, the average retail healthcare inflation for India was 7.14 per cent for 2018-19, witnessing a steep rise from 4.39 per cent in the previous fiscal. So, any unfortunate medical emergency could lead you to liquidate your assets, if you don’t have sufficient money post retirement.
3) What are the steps of Retirement Planning?
- Decide Your Retirement Age
- Figure out your post retirement expenses:- Estimate your post retirement expenses based on your current income and expenses, and how you think those expenses will change in retirement. You can use our retirement calculator to determine the amount.
- Analysing your current financial situation:-
- Record all your income and expenses and look at where you are spending the most. Use extra money to pay down debts, build an emergency fund, and save for your retirement.
- Determine your net worth (Asset – Liabilities). Write down your assets (i.e., cash, investments, land, home) and subtract everything you have as a debt (personal loan, credit card, loan from relatives). Figure out which debt has highest interest charges and try to settle it first.
- Form a proper investment strategy:-
After analyzing your financial status, you need to decide the amount which you are able to save every month for your retirement corpus. Depending on your risk appetite, form a right asset allocation for your monthly savings. You can use our investment planner calculator to decide the ideal allocation amount.
- Periodic Monitoring and Rebalancing
You need to monitor your investment at regular intervals to ensure you are following the right strategy for your retirement goal. Any changes in the income, expenses, retirement age, etc. needs to be incorporated in the retirement plan.