Retirement is an important part of our cultural fabric…
Few decades back it was considered as a basic right of an employee….but with more commercialization of industries, and huge rise in private sector jobs, retirement has become an optional part of the employment plan.
However, retirement is still the last piece of the puzzle for free life: a home, a secure family, and an adequate retirement.
For much of history, people tend to work till the can or till they are too old to work. The idea that a healthy person stops working – just to enjoy life , irrespective of his age — was considered an extravagance privy only to the ultra rich.
Retirement is no more viewed as a right,and part of the employment plan. It has become a luxury for which a person has to plan, prepare and act to become entitled to.
Retirement is neither God given nor Government given. With employer sponsored pension funds disappearing, improvement in health care services enhancing life expectancy we need to plan for retirement at the earliest
You can retire at any age and that’s what financial freedom aims to achieve.
One of the simplest things about retirement is that you can sponsor it through any asset that can create enough passive income to strike against your monthly expenses.
The fun fact is that we can do this. We need to start early. The earlier it is, the better it becomes.
Financial security during the old age days in retirement does not just happen. It takes planning and commitment and yes money. One way of looking at retirement is like the creation of funds.
Do I need to plan to retire?
The answer is yes. You must plan for your retirement.
Though the concept of retirement planning is the same, retirement planning has evolved over time.
You work, save and then you retire. But in today’s world, the way you sponsor your retirement has changed and the challenges that you might face in order to have a safe retirement have also changed.
Few concerns that push us to plan for retirement are
> Improved life expectancy: life expectancy has grown longer, this means that you need your money to grow longer
> Your employment plan does not include pension plans: companies are moving away from providing pension benefits to their employees. The guaranteed monthly promise of the employer to the employee in the form of pension has faded away.
> Funds might not grow to provide for regular income: If you don’t create passive income assets, then your investments might not be able to provide for your monthly expenses.
> Increased cost of healthcare: The cost of healthcare has risen manifold. You need money not only to get good healthcare whenever you are sick, but you need good amount of money to maintain good health and support good nutrition, medicines etc. With growing age, more healthcare support in terms of medical checkups, regular medicines, nutrition goes up generally.
> Exotic retirement life experiences: once you don’t need to go to the job regularly, you might think of fulfilling your life dreams of continuing your life
How should I approach retirement ?
Thinking of yourself as 70 year old is a tough thing. And then imagining all the possible difficulties life can have in terms of health, unknown future, accessibility, security etc is a tough thought to give. A lot of people get so overwhelmed about saving for an unknown future, that they end up not saving anything at all. Thankfully planning for retirement is not overly onerous, but you will need a road map- one that can evolve over time- to keep you on track.
The first task is to set up goals for retirement. After that, you need to work out the cost of retirement. We don’t know what prices will be like in the future, and what inflation will be like.
Start saving, and stick to your goal: In case you are already saving, then it’s a good sign, you must keep going. However, as you know that saving is a rewarding habit. If you are not saving, then today is the day you start.
To develop a habit you can start with small amounts. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow. Make saving for retirement a priority.
Know your retirement needs: Retirement is expensive. It is a luxury that you afford by saving throughout your life with discipline. Experts estimate that you need 70 to 90 percent of your pre-retirement income to maintain your standard of living when you stop working. Take charge of your financial future.
The key to a secure retirement is to plan ahead.
You’ll also want to factor in your day-to-day expenses, like housing costs, food and healthcare.
Contribute to a retirement savings plan: If your employer is offering a retirement savings plan, then you can contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Overtime, compound interest and tax deferrals make a big difference in the amount that you accumulate
Understand the pension plan available to you: you must pay attention to the details of the retirement plans, or pension plans available to you. You must understand how the pension plans work, what are the benefits that retirement plans are offering to you
Keep the basics of investment principles in your mind: The amount you save is as important as how you save the amount. Inflation and the type of investment play an important role in how much money you will have at your retirement day. Learn about your plan’s investment options and ask questions.
Don’t touch your retirement savings: if you withdraw your retirement savings now, you’ll lose principal and interest and you may look at tax benefits or have to pay withdrawal penalties.
Keep yourself updated about the tax benefits your retirement savings are attracting.
Add up all your income that you might have in your post working years. Factor in pension income if you have one, social security payments and other dollars, such as rental income from a property, that may come your way. Match up revenue and expenses and you will get a good idea of what you will need to set aside for every year of your retirement.
What considerations should I put in while making calculations for retirement ?
Starting early is the key: The younger you start, the better it is. When you start allocating funds towards a retirement investment, the higher the payout at the time of maturity. Or, if we look at it in another way, if you start late, you need to save a lot every month to save the required corpus, not enough money at retirement.
Inflation needs to be factored in : When it comes to financial planning, inflation is the biggest enemy, and it is no different when it comes to retirement planning. Expenses will rise every month not only till you retire but even after retirement.
Expenses during retirement do not go down: Although some sort of costs like commuting cost and formal clothes etc, might come down but other expenses might catch up. However, other needs like health check up costs, medical assistance etc might increase. You need money to be able to socialise with friends and family and to travel.
You need to create a buffer: All your planning for the future will be based on a set of assumptions. These assumptions might not work the way you thought. Keep an eye on these assumptions to have a foolproof plan.
You must be prepared for any contingency. Contingency funds or emergency funds must be part of your survival kit during retirement.
Keeping a good plan in place can help you to come up with a healthy and happy retirement.
