Know the Basics of Retirement and How to Plan for it

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Why do you need retirement planning?

Time always moves faster than we expect. You may still remember the time you received your first salary clear as day, but will be stumped to realize that your retirement has rolled around so quickly. Planning for retirement becomes necessary as you will be fighting against inflation, daily living expenses, and high medical costs. Additionally, old age always comes with its own set of emergencies. Ensuring that you create a corpus sufficient enough to deal with each of these is essential. Retirement is a reality for anybody, but it is easy to forget to prepare well for it. This is why retirement planning is needed early in your financial journey.

Four reasons why you need retirement planning

Here is a summary of a few key reasons why retirement planning is so necessary

  • Beating Inflation:
    The increase in the cost of goods is a phenomenon that has been predicted in the near future. Even if inflation occurs in the short term, its impact can be massive over just the next few years alone. If inflation were to grow by 5% each year, in twenty years the purchasing power of ₹21 lakhs will equate to ₹7.5 lakhs. In economies like India that are growing, the consumer level of inflation can even exceed 5%. Your expenses do not disappear after retirement. There are still groceries to be bought, medication, paying off utility costs, and more. A good pension plan must be purchased in a way such that the anticipated inflation is accounted for.
  • No state-sponsored pension:
    Unlike countries like the USA, India's private sector employees do not have a state-sponsored option. Social security's fundamental benefit is seen when employees retire. Employees receive state-funded pensions as well as retirement benefits. India does not have an option like that currently, implying that one must plan for their own retirement. The advantage of this is that one can create a pension strategy for themselves that gives them the flexibility to purchase a retirement plan, while government-funded pension plans remain fixed and unchanging.
  • Medical emergencies:
    With an increase in age general health problems, as well as lifestyle ailments, catch up to us. Medical expenses can make a huge dent in your post-retirement savings as medical inflation occurs at a rate of 14% to 15% each year. This indicates that health costs can potentially grow fourfold compared to what they were just ten years ago. For this reason, preparing with a proper retirement plan can cover those expensive multiple hospitalization costs.
  • Nuclear families:
    Those days where the elderly had the benefit of relying on monetary support from a large family are now long gone. In fact, the culture of Indian families is changing with couples deciding to go nuclear and live separately. About two or three decades later, you might not have enough relatives available to take care of you, as a senior citizen. When children grow up, they too wish to relocate for their jobs elsewhere. Add to this, the pressure to earn money while living a decent lifestyle. Hence, planning for your retirement without expecting your children to support you is more important than ever.

What are the steps to retirement planning?

Retirement planning has many key steps. You must keep in mind a few factors before you opt for it. Here are the steps to getting a retirement plan for yourself.

  • Set your retirement goals. Arrange these into short, medium, and long-term goals. Most of these goals will require your own financial resources.

  • Next, carefully evaluate your financial position right now. By the age of thirty or thirty-five, this situation will be quite different from somebody in their late 20's.

  • Thirdly, estimate -as accurately as possible- how much money you will need for your retirement goals to be met.

  • Finally, identify your retirement income creators. Apparent from savings, mutual funds, and more, the best way to secure your retirement is by investing in a retirement plan, which is crafted to meet your retirement needs.

  • Create a system that will generate a monthly income from your retirement corpus. When we are salaried, we are in the habit of receiving an income from our business or our employer. With the onset of one's retirement, this paycheque needs to be arranged by you itself.

What is the Importance of Insurance in Retirement Planning?

The fundamental goal of retirement planning is to ensure that, once your salary ceases to be regular, you continue to have a source of income that can take care of your monthly expenses. All retirement plans have this as their basic motive. In fact, if you have any kind of adequate income post-retirement, your every financial need can be taken care of with complete confidence.

When it comes to holding a retirement plan together, life insurance plays a huge role. Oftentimes, for many individuals, retirement planning involves not just the insured, but their family as well. While saving and investing is vital, the risk of an unforeseen fatality always exists. In case the breadwinner of the family is absent, the non-working spouse might find this time incredibly stressful. Using an affordable retirement plan to secure your loved ones is crucial.

Life insurance allows the nominee to receive a Sum assured in case of the death of the insured. This sum can be used to aid their retirement situation. If both spouses survive, their retirement goals can be achieved. Hence, life insurance in a retirement plan can help secure your loved ones and also grow your investments. All in all, planning for your retirement ensures a smooth inflow of finances even when you do not have a recurring source of income.

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