What is retirement planning?
Retirement planning is essentially a process of estimating one’s future financial needs and systematic investment towards building a suitable corpus to sustain in retirement. It ensures that, in the absence of active income when you have stopped working, there would be enough money available for one’s daily needs, medicinal requirements, and personal goals.
The key focus areas of any effective retirement planning include:
- Long-term wealth creation
- Inflation protection
- Regular income during post-retirement
- Capital preservation
Also read: ELSS Mutual Funds: Best Tax Saving Investment Under Section
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Why is Retirement Planning So Important in Today’s World?
In the Indian context, most people do not have a fixed pension system post their retirement from services. This is where self-implemented planning becomes the most important factor. Some of the most important reasons which justify retirement planning are:
- Increasing Life Expectancy: Most retirees live 20-30 years without engaging income-making activities
- What does inflation mean?: The value of money falls because prices go up. The price of commodities,
- Healthcare Expenses: Medical Expenses Rise with Age
- Financial Independence: Reduces dependency on family members
The earlier you start, the earlier the power of compounding starts working for you, thereby reducing the burden of your monthly savings.
How Much Retirement Corpus Do You Need?
The ideal retirement corpus will depend on:
- Present Age Retirement Age
- Estimated monthly expenditures after retirement
- Inflation rate
- Life Expectancy
A commonly used rule of thumb is:
Annual retirement expenditure × 25 to 30 For instance, if your annual retirement expenses are expected to be ₹10 lakh, you would require a retirement corpus of around ₹2.5 to 3 crores.
Best Investment Options for Retirement Planning
1. SIP in Mutual Funds: Systematic Investment Plans in equity mutual funds are one of the most effectual tools for long-term retirement planning. They function as:
- Accumulate wealth. spy
- Minimize market risks by rupee cost averaging
- Beat inflation over long periods
2. National Pension System (NPS): It gives a structured savings program for retirement with exposure to equity and debt, as well as a component of tax shielding.
3. PPF and ELSS: The PPF and ELSS offer long-term savings solutions efficiently with tax stabilizers.
4. Planning for Post-Ret: After retirement, a SWP transaction, an annuity scheme, or debt funds will be useful in creating a stream of income.
Role of Healthcare and Emergency Planning
The aim of planning in Medical expenses can also be a significant burden during retirement. Having a dedicated health corpus and health insurance is a must. Further, maintaining an emergency corpus that can take care of 12 months of expenses can be a wise practice if one experiences unexpected financial circumstances.
Conclusion
Planning for retirement is not only an issue of saving money but is also an aspect of planning your future and gaining independence in the future. By planning accordingly and using the right investment strategies, you can easily have a stress-free retirement and live the way you want in the future. The sooner you plan for retirement, the better you will be able to meet your retirement goals.
Disclaimer: Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.
