Retirement Planning – Overview, Importance, Goals, Stages, Necessity, Benefits & more

It is essential to understand why you need to follow or consider Retirement Planning, and when to start this planning. So, this article will discuss the most crucial factors of the same, to get you started.

Retirement is one of the most significant events of our life. However, what comes next can be pretty much unexpected if we fail to plan properly.

Now, if we ask this simple question – what according to you is the perfect retirement plan, we might get thousands of answers which have suggestions and recommendations.

That, however, doesn’t answer the question directly. So, in this article, we will explore various aspects of retirement to give you a general idea.

But before that, we will explain what, in real terms, is retirement planning.

Retirement Planning – Overview

In layman’s term, it is to do the planning of your life after you retire from the current job you are doing. Similar to every plan in the world, a retirement plan also has a time-frame.

Now, it is solely up to you when you will start planning your retirement, but we recommend you to do so as early as possible.

If we elaborate it a bit more; a retirement plan doesn’t look only after the financial aspect.

There are several other elements that you should also consider while you are planning.

As you have invested a lot of time working, a sound retirement plan should also involve the ways to spend quality time with your family and friends.

It should also include an upgrade to your home or probably buying a new real-estate.

We will dive deep in this matter while explaining the basic reasons to make a retirement plan, later.

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Why Retirement Plan is important?

Time flies, and suddenly you will realise retirement is not that far away.

Anyone who is working has some current liabilities that they must repay, and at the same time compete with the growing inflation.

Therefore, it is pivotal to plan your retirement in such a way that not only suffice your financial needs but also bring peace of mind after working for so many years.

So, down below, we have found some basic reasons why you should do proper retirement planning:

To Beat Inflation

It is a universal fact that the price of every commodity or service will rise. The sad reality is the rate of inflation, especially in a country like ours, is getting higher exponentially.

To make things even worst, the salary increment is not up to that mark to match the inflation level.

So, if you imagine a life after retirement where you will not earn the amount of money which you used to get while you are working, things are not looking great.

So, it makes perfect sense to prepare a retirement plan that can beat the standard inflation in the future.

Overcoming Medical Emergencies

We get old, and therefore we retire from work. So, you should always expect a drop in health status after you retire from work.

The sad reality over here is the medical expenses are getting higher every year, around 14-15% to be precise.

On top of that, if you caught up with any severe disease, you can see your hard-earn money evaporate in thin air in a matter of months.

Now imagine a couple of more family members suffer the same fate. The medical costs will sky-rocket and eat up every penny you made.

So, taking care of the medical expenses should be the first thing on your list.

No or minimum assistance from the Government

In a developed nation like the US and UK, there are several benefits that a non-government employee gets. Of course, if they work in the government sector, there are dedicated pension plans.

Such benefits are non-existence in India, apart from a handful of companies. Over here, you will get what you have worked for.

So, typically there is no dedicated pension plan sponsored by the private sector industries in our country.

So, as you are not getting any assistance from the government, you must be the one who should take care of your financial affairs after your retirement.

Thus, a retirement plan is almost mandatory.

Sustain in a Nuclear Family

Even though the daily soaps in Indian television portray every family as a joint family, that isn’t the reality of our country right now.

Now, the point here is as you are settling down to a new place, of course, it is an additional expense that you must make.

So, after retirement, you will not likely get any help from your core family, as they too have their respective liabilities to take care of.

Therefore, you should make room for all the miscellaneous expenses for settling down somewhere else.

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What should be the goals while you are Planning Retirement?

One of the most crucial factors that you should understand is the fact that you must plan your retirement years before you actually do retire. As a matter of fact, the early the better.

In fact, if you do plan early and smartly, you can even retire at 40.

But since we are not discussing early retirement today, let us check out some of the obvious goals that you should have while you are planning your retirement:

Start Early

If anything is more valuable than money in today’s world, it is time.

So, if we learn the art of utilizing time with proper investments, you don’t even realize how much easier life would become for you post-retirement.

So, it is crucial you start investing as soon as you start earning. That is something which will always feel like a liability when you are young.

But if you can resist the temptation and save enough, you won’t even have to worry about anything else in future. Everything would automatically fall in line.

Figuring out the lifestyle

Anticipating your post-retirement life at an early age can be more difficult than how it sounds at first.

However, what we are suggesting is not to be specific on what you want from life, but be realistic of what you can achieve from it.

One of the biggest barriers of you chasing your dream retirement is how much you are earning right now.

So, what you should always remember is to set realistic goals that you feel you have the capability to earn; not by lending.

Should cover standard Inflation

One of the most obvious goals that you should have while you are doing retirement planning is to guess a tentative inflation rate.

We recommend discussing with consultants or economists and take their advice to figure out your daily expenses say after 25 years.

If your estimates are flawed in this segment, the entire planning will get ruined. As retirement plan is not a “trial and error” method, you will get only once chance to plan it right.

So, do your research, cross-check the data, and then start investing.

A Decent Medical Coverage

As we have discussed how much essential it is to plan for medical coverages while planning your retirement, it is time we should talk about the remedy – medical insurance.

Now, you can choose a plan separately, or you can add it with your existing pension plan. Either way, it is pivotal.

As it typically gives coverages to both you and your family, you can save tons of money if in any case, you face such a situation.

So, medical insurance with decent coverage for you and your family is a must-have in your retirement plan.

Prepare for various Emergencies

We all would agree that life is uncertain. Anything wrong can happen in your life or to your loved ones.

We know money can’t be the solution for every emergency situation you might face, but we can guaranty you that it can resolve 90% of the problem that we are facing right now.

Therefore, it makes sense to create room for any financial emergency in future in your retirement plan.

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What are the ideal stages of Retirement Planning?

Let us now discuss more intricate strategies of how you should plan your retirement. So, we have segregated various stages of retirement based on the age group:

25 – 35 Age Group

We are assuming that by 25, you will get a job, and are able to earn a decent salary. The first step is to start investing around 15% of your salary on mutual funds.

Now, you can argue that you can put your money on your savings account. That too would yield interests for the upcoming 10 years.

However, the return itself would not justify the amount that you keep in. Better do a couple of Fixed Deposits – one for short-term of up 1 year, and the other for at least 5 years.

Investing money in the Systematic Investment Plan is also a viable option which you should seriously consider.

36 – 45 Age Group

This phase is like batting in the middle overs of a one-day cricket match.

You need to accumulate a lot in this phase, and for that, there are tons of adjustments which you should make, all for the greater good.

You should also stretch the investment and savings ratios to 25% of your salary so that you can make the bulk of the earning.

One thing that you should remember is you should try and keep the debt level to 0 or minimal level in this phase, or any phase really.

46 – 55 Age Group

As soon as you reach this age, you should start accumulating your financial assets in one place and start doing the final paint.

If you are true to your commitments in the last two stages, this is the time, you should start relaxing a bit and put more emphasis on your health and family.

The core foundation is ready as you have worked so hard for it. So now, it is time you start reaping some benefits. Of course, we are not saying anything about stopping all your investments at once.

That is something that you must take care for more 10 years. But we recommend you can lower down the amount to 10% for the next decade.

Why Insurance is necessary while you are Planning Retirement?

Let us assume you did the basics right by starting investing at the age of 25 and carry it on for a couple of more decades, life is not guaranteed here.

In other words, no matter how much you accumulate for your retirement, that still doesn’t provide coverage to your family if in case something unfortunate happens to you.

That is why it is essential to own a life insurance plan and be on the safer side.

What are the additional benefits of a Retirement Plan?

Prior to all the discussions, you should check out some of the additional benefits to let feel the importance of it:

Home Renovation

When you own a house, you constantly need to maintain.

There are so many areas that you need to take care of like plumbing, painting interior or exterior, fire-proofing, home security in some areas, and a lot more.

Of course, you need adequate funds to be prepared to fix the issue whenever arises.

Buying New Properties

You can always buy a new property in the form of land acquisition or real estate. You can always plan for that with a decent pension plan.

Tax Benefits

You may get hefty rebates on various retirement plans. Check out all the tax-related documents whenever you decide to get an insurance plan.

Conclusion – Retirement Planning

So, we have come down to the verdict. All things considered; you should get a decent retirement plan that also gives you standard coverages on life insurance policies.

Of course, you can’t forget to include medical insurance as well. Retirement can be fun if you plan properly.

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