Why Retirement Planning?
Retirement planning is the real and urgent need for everyone. There are people out there, who hardly think about there retirement phase. Mostly young age group people live in the present. They do not care about the future. They spend most part of their earning in the latest mobile or car or the grand vacation to Europe. Sometimes people start planning lately when they are just a few years away from the retirement and I feel that would be too late. Its’ good to start saving for retirement at an earlier stage. As it will help in reducing financial pressure in old age and also enables to enjoy an ideal retirement, rather just a compromise.
Steps for a better retirement planning
# Plan for a better retirement life :
One should have a better plan for retirement before he/she invest for the retirement phase. Often people puzzle what to plan! Why to plan! And makes the thing complicated. But truly speaking Retirement Plan is nothing but your wish-list, how would you like to spend your retirement days.
Say for example, if you would like to spend your retirement days in a simple 2 bedroom flats with monthly expenses of Rs. 20,000 then you have to make a plan to save in that way from the beginning. When you plan for retirement, you must consider medical expenses and other contingencies and keep aside a part of money for those expenses too.
# Consult with a financial advisor :
Yeh, this part is very much essential while your retirement planning is rolling on the way. You should consult with a financial advisor and decide, how you are going to spend your life in retirement and for that how much you have to save now. Then your financial advisor will calculate and let you know, how much you need to save. Also tell you where to invest your savings so that you can achieve your retirement principal. He will chalk-out a plan and apply the same for you.
# Early beginner gains more :
Its universal truth and happens in retirement case as well. If people decide to contribute in retirement lately then there might be some initial resistance and protest. But whoever started early, would be enjoying contributing a small part of his earning with an aim to live worry free life in the old age. I know some people have some personal problems which hinder them to contribute in investments. But for the good future of your family and you, you have to sacrifice some part there.
Take an example of these three gentlemen John, Johny and Jhonson as follows
|Present Age (yrs.)||25||30||35|
|Retirement Age (yrs.)||60||60||60|
|Investment duration (yrs.)||35||30||25|
|Monthly Investment (Rs.)||5000||5000||5000|
|Returns per annum||10%||10%||10%|
So, you can see after retirement John’s investment is much more than Johny and Johnson as he started 5 and 10 years earlier respectively. That’s not all, he also enjoyed all other benefits like reduces the tax to be paid out of income, reduce pension costs of employees, can be moved from one company’s plan to next.
# Avoid using your retirement investment :
Quite often people loose their control in financial emergencies either its small or big. They may have other ways to tackle that sort of situation but as I said people loose their control in emergencies and rush to withdraw from their retirement investments. If really there is no other option then definitely you can withdraw and solve the present problems. But you must try to deposit the amount you have used in your emergencies at the next opportunity.
# Follow-up your plan time to time :
Consulting with advisor, outlining and implementing the retirement plan, that’s not all. You should follow-up your plan from time to time to ensure that its on the right path, to meet your targeted return. And here your financial advisor plays an important role. He/She would observe all your investment status and put a stop on the investments that are not performing up to the mark and invest in alternative investments. With time as you grow closer to retirement the financial advisor starts decreasing the number of investments from risky assets like stocks and equity funds and invests into the fixed deposits.
It’s not that your income will be the same in your all working life. Suppose you start with Salary 50,000. After 5 years it will definitely go up to 75,000 to 90,000 depending on your experience. And you may start dreaming of a small Bunglow at the outskirts of the city instead of a 2 bedroom flat. Here also your financial advisor might come into play and have you change your investment plans based on any additional inputs you give him.