Retirement planning is the process of determining retirement income goals, and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, sizing up expenses, implementing a savings program, and managing assets and risk. Future cash flows are estimated to gauge whether the retirement income goal will be achieved. Some retirement plans change depending on whether you’re in, say, India, United States or Australia.
Retirement planning is the process of setting retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk.
Retirement planning is ideally a life-long process. You can start at any time, but it works best if you factor it into your financial planning from the beginning. That’s the best way to ensure a safe, secure and fun retirement. The fun part is why it makes sense to pay attention to the serious and perhaps boring part: planning how you’ll get there.
Money works for you
In the younger days, everyone runs after their 9-5 jobs. Everyone works to earn money and have a good living. However, retirement days are the days where one cannot work any longer. Therefore, it is the time when the money one earned should do all the work.
This is the most significant outcome of retirement planning. Retirement planning helps to lead a peaceful and stress-free life. With having investments that earn regular income during retirement leads to a worry-free life. Retirement is the age where one has to relax and reap the benefits of all the hard work.
Inflation beating returns
Investing in retirement will help in earning inflation-beating returns. Holding money in a bank savings account will not generate high returns. In other words, the interest earned will not be enough to lead an uncompromised retirement. Therefore, proper investment planning will help one to generate significant returns in the long term. Also, it is important to start investing early. This helps in averaging out the impact of market volatility.
Planning for retirement at a young age will help in reducing the cost. For example, in an insurance policy the premium amount to be paid will be lesser when the policyholder is younger. While getting insurance during retirement becomes costly.
Need of Retirement planning
- Best time to fulfil life aspirations.
- One cannot work forever.
- Start planning early and diversify investments.
- The average life expectancy is increasing.
- Relying on one source of income is risky, e.g., pension.
- Do not depend on children.
- Higher complications, e.g., medical emergencies.
- Contribute to the family even during retirement.
Life cycle Planning
Stages of Retirement Planning:
- Young Adulthood: Those who are entering an adult life may not have a lot of money to invest, but they can have enough time to let investments mature. It makes a critical and valuable piece of retirement saving. Such investments can make up a large piece of investments with regards to the principle of compound interest. Compound interest allows interest to be calculated on interest the more time you have, the more interest you will earn.
- Early midlife: This age can bring in a lot of financial stress in terms of mortgages, student loans, and insurance premiums. Therefore, it may be difficult to save in this period.
- Later midlife: When time is running out to make up for the difference in the actual savings and retirement plans, you will have the last opportunity to fill the gap. Since you will have higher wages and most of your debts would be fulfilled, you can have a larger sum available for investment.
The level of emphasis on retirement planning varies throughout different life stages. During the youth, retirement planning only means setting aside enough funds for retirement. During the middle of the career, it might change to setting specific income/asset targets and taking the necessary steps to realise them. Once you reach retirement, decades of savings will pay out.