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Retirement Planning
Retirement Planning
Retirement is one of the most important life events that we all go through. You invest all your days/years in earning well so that your family and you live a dream life. For creating a comfortable retirement is an extensive process in itself and requires years of planning. Even when you enter your golden phase, managing it is no cake walk. Many of us find the process daunting and hence put it off only to realize that there isn't enough money left to live the life we desired all these years. But with professional help, some homework from the investors end combined with long term commitment, retirement planning is not that complex as it seems. Let’s first understand the what exactly do we mean by retirement planning
What Is Retirement Planning?
An effective retirement plan is a must have for everyone. There are plenty of insurance companies and mutual fund houses that offer various pension schemes with different options and other plans to help you generate wealth. Even if you have already reached your desired savings, these plans will still be a very important part of your investment portfolio. There are some key components that we must focus on while planning for successful retirement like any unforeseen medical expenses,estate planning, flexibility to cope with sudden changes, etc.
Why Is It Important?
- Life expectancy has improved tremendously. As per the studies, it is expected to go up to 80-85 years in the coming few years. Therefore, increased life expectancy means increased expenses which in turn means you need to have surplus corpus to meet those outflows
- Rising inflation can deplete your savings. So creating a retirement plan, taking into consideration the future rate of inflation, will help you save up more realistically. In simple terms, it means your corpus should be able to beat the inflation rate at the time you retire
- There isn't anything fixed or guaranteed in today's time. The time when Government defined schemes gave them guaranteed lump sum payouts or pensions are long gone. So, it is advisable not to depend on organizational or to say any social security system of the county, rather make a plan for yourself
- The pension that you may receive is likely to fall short during your golden phase. Retirement planning ensures that you have enough to keep you secured financially
- The past few years has been a roller-coaster ride for financial markets globally. Even the debt market bore the brunt of the fluctuating interest rates and nothing can be predicted about market stability in the future either. In such situations, if you have no concrete plan for your retirement, the chances of a financial disaster shoots up considerably
- Better and improved health-care facility has increased life expectancy to a larger extent. This also throws light on the fact that medical inflation is rising at 7.8% P.A. in India. So investing in a health insurance policy will form an integral part of your retirement planning, since that would be the stage when you need it the most
- More families are opting for nuclear way of living, this pattern repeats in the post retirement lifestyle too. So to support an independent retirement phase, you need to have a strong financial foundation
What Mistakes To Avoid
- Do not delay your planning anymore, this is the first step. Saving early has lots of advantages and will be only beneficial because your money gets more time to grow. If you do not start up early, you will miss out on the benefits of compounding
- Inflation ,a rate at which price rises, will weigh down heavy on your savings if you ignore it. In simple terms, it means that things will become costlier and years from now, the purchasing power of your money will drastically reduce
- Dipping into your retirement funds like before you actually retire is a very wrong move. Many plans/schemes offer tax savings and hence are highly useful for retirement planning and are designed to provide financial security for the golden phase
- It is advised to invest in a good health policy at the earliest. Medical expenses are sky-rocketing in today’s timing and the group medical cover offered by your employer will cease to provide any benefits once you leave the organization. Moreover, you also stand to avail tax benefits U/S 80D
- It is also very crucial to invest in the right assets. Your portfolio should include the right mix of every asset which is known as diversification since 91% of performance of the portfolio is linked to proper asset allocation