What is the importance of retirement planning

Retirement planning means planning today for your upcoming future life. Retirement planning is the procedure of determining your retirement income goals and the actions and decisions which are necessary to achieve those goals. Retirement planning consists of identifying sources of income, sizing up expenses, implementing a savings program, managing assets and risk. Retirement income goals will be achieves if the future cash flows are estimated to gauge. Retirement planning is a lifelong process. You can start anytime but it is advisable if you include it in your financial planning from the very beginning. It is a best way to ensure a safe, secure and fun retirement. Retirement planning does not only take assets and income into account but also future expenses, liabilities and life expectancy.

Importance of Retirement planning

It is easy to cover your daily expenses till you are earning your monthly salary. But after retirement you need to have enough money set aside to live the rest of your life and maintain a good lifestyle.

To manage your daily expenses

Everyone needs to bear the necessary daily living expenses even after retirement because life moves on and the absence of our monthly income could soon become a nightmare. Retirement planning is to avoid such nightmares from becoming a reality. Not everyone receives a pension or gratuities after retirement and even the ones who receive it the amount is generally not enough to cover all of your expenses. You also need to ensure that your family’s standard of living is not compromised post retirement.

To cover your medical expenses

With increasing age the health issues and emergencies also increase. Medical expenses create a huge hole in your expenses pocket. Nowadays even a small treatment costs a small fortune. Health insurance or Mediclaim may not always cover your medical expenses. Which is why your retirement planning must be large enough to cover your and your family’s medical expenditure to avoid financial crunch in the upcoming years of your life.

To deal with inflation

Inflation means the rise in the prices of goods and services. It gradually destroys the purchasing power or value of your hard-earned money. If you notice there is always a constant rise in the price of goods and services and such increasing price will continue to rise till your retirement age. Which means that you would have to pay more for everything in the future. From grocery to travel to accommodation it is all going to cost you more in the upcoming future. With a good retirement plan which aims to establish an adequate retirement corpus accounting for inflation, life expectancy, rate of return and so on. You can invest in mutual funds & stocks as well, for that you need to have demat account, here you can find the list of stock broker & choose the demat account as per your wish.

To overcome with uncertainties

Life is unpredictable and uncertain, it sometimes throws us in adverse situations and circumstances which we may not have expected. Some situations have the power to create a financial as well as emotional disturbance in your life such as natural calamities, loss of loved ones, financial difficulties in life of any family member, situation like the coronavirus and so on. Having a pre-decided retirement planning takes acre of such contingent events which can always come to your rescue. While approaching retirement it is imperative that you have a sufficient contingency fund, so that the current timeline of turbulence or disturbance can be overcomed by not hindering your long-term goal of retirement.

To meet your retirement goals

Retirement goals are the objectives that you wish to achieve in your retirement years. These could be travelling and exploring new places or taking up hobbies that you have always wanted to pursue. If you do not plan and save for all of such retirement goals in your working life then such desires cannot become a reality in your post retirement years.

Below are some steps that you need to keep in mind:

Decide your retirement age

Most common retirement age is 60 years, but it may differ from person to person. Some may wish to retire between 40-50 or some may wish to work on. For example if you are 27 years old and you want to retire at the age of 55 then years to retirement is = 55-27 = 28 years.

Start planning early if you wish to retire peacefully

With several years in hand you have the power of time and compounding in your favour. Delaying your retirement planning means compromising your goal. Many young people who are in their 20s may think that retirement is years later and planning for retirement now may seem over cautious.

Determine the future value of your current savings

Your saving is the extra amount that is left after deducting your annual expenses from your net salary and an ideal way to earmark a portion of your savings towards retirement. This part of your savings should not be disturbed unless it is very urgent. After estimating the amount you will be able to save annually you need to find out its future value. And to determine this you need to find the expected rate of return on your investment.

Track and check your plan regularly

Your retirement plan needs to kept in check after regular intervals to make sure you are on target to meet your objectives. Any changes in income, expenses, retirement age etc needs to be made in your retirement plan. Make your retirement plan meet your investment objectives in the changing market conditions.

To sum up

Retirement planning is needed so that you can continue to meet all your goals and dreams independently. Which includes setting your retirement goals, estimating the amount of money you will need and investing to grow your retirement savings. It is never too early or too late to start your retirement planning. Age brings along increased medical expenses and you will have to navigate the often-complicated Medicare system. So for such expenses one must take insurances like life insurance or long-term care insurance to consider. It is important to have a strong retirement plan that will make you aware where you stand today and what all steps you will need to take to achieve such goals.