Why You Should Plan Retirement & How?

May be it is 5 year, 10 years or 15 or 25, but retirement is sure and you are going to retire one day! The decision when to retire is a significant personal decision but to have a good corpus built for your to retire secured is of prime importance.

Retirement plans provide you with financial security so that when your professional income starts to shrink, you can still live with pride without compromising on your living standards. Given the high cost of living and rising inflation, retirement planning has become all the more important.

Now the question arises that since we all are contributing to EPF or some LIC/SIP Mutual Fund policies, what is the needs of a Retirement Planning?

Need of Retirement Planning

This may seem like a trivial question, but you might be surprised to learn that the key components of retirement planning run contrary to popular belief about the best way to save for the future. Further, proper implementation of those key components is essential in guaranteeing a financially secure retirement.

India's average life expectancy is slated to increase to over 75 years by 2050 from the present level of close to 65 years. Lifespans have been increasing due to better health and sanitation conditions in the country. However, the average number of years of employment has not been rising commensurately. The result is an increase in the number of post-retirement years without regular income. Therefore it is more critical now than ever before to ensure regular income for life after retirement.

How do I plan for my Retirement?

So now that we've been through the important parts of the why, let's start tackling the how of retirement planning by asking main retirement question: "How much money do I need to retire?"

Here I am listing various ways to help you build a corpus for your retirement.

1. Start Saving Early

Your savings should not run out while you are alive. You need to calculate the corpus amount required for retirement based on when you want to retire, how much you need to spend every month after retiring, inflation, tax and investment returns. You need to be very careful in factoring in inflation when planning for retirement. In addition, you need to have sufficient cover with adequate health insurance too.

2. Calculate Your Retirement Corpus

Accumulate money for your retirement. You can then to proceed to accumulate funds for early retirement, if you plan so. This way you can break your targets and hence it gives you psychological comfort to know that even if you are forced to retire early there is no reason to worry since you have factored in early retirement in your financial plan. Do not forget to analyse your liabilities.

3. Take help from a financial planner, if required.

Do not fall prey to get-rich-quick schemes because higher returns go hand in hand with higher risk that you cannot manage as you near retirement. Protection of capital is the name of the retirement game.

4. Take Calculated Risks

Your portfolio should contain different asset classes. By investing in a diversified equity portfolio, you take a calculated, not blind risk. Equities beat all other asset classes for long run, so investing in retirement specific ULIPs is an important option for those who want to retire early.

The other advantage of saving for retirement through life insurance policies is that it provides protection and takes care of your spouse’s retirement event in your absence. Additionally, these plans, which allow indexation, address the consumer concern of inflation on retirement corpus.

5. Keep On Evaluating Annual Cash Requirements Periodically

The monthly income required after retirement will be an important criteria for deciding the retirement corpus. If you are comfortable with spending less, you need to be careful in drawing a budget for cash requirement after retirement.

6. Take one LIC Pension Plan on top of Market Option.

Tax deferment is an important tool for early retirement. Tax deferment means paying less tax now. If you pay less tax, you have more money to save. You need to pay tax on FDs on maturity even if you renew them. In life insurance, 1/3rd of your maturity corpus is tax-free and the balance you can invest in Annuities, which are taxable.

7. Find out some ways to have an income after retirement

Every individual in their life have a hobby for instance teaching, advising and reading. Even after retirement, you can have an income by way of a hobby or interest. You need not work on a regular schedule. You can be a trainer, a blogger, a consultant, or an advisor in your chosen field to generate additional income and keep yourself engaged after retirement.

Bonus

If you are able to generate this kind of income, you can retire early. To retire early you need to have a sound financial plan. Professional assistance from a financial planner is always useful if you desire to retire sooner and retire richer.