Importance of Retirement Planning

10 Nov 2021  Read 1757 Views

As you live, you inspire; when you die, you expire, but before you die, you retire. Retirement is a phase in people's lives that most go into without much forethought. When it comes to old age, people forcefully limit themselves to a life of frugality when the maintenance of a reasonably well-funded life isn't out of people's reach with just some retirement planning.

Retirement planning, although preparation for the future, needs to be talked about in the present as the general consensus regarding retirement seems to be to "just relax and watch the sunsets" well to relax, you need a fallback plan and possibly generate an income or create a surplus to "sit back" on.

Start retirement planning early in life

Kaal kare so aaj kar, aaj kare so ab. Retirement ayegi 60 ko, dekh lenge tab. This seems to be the prevalent attitude among the working and earning demography presently. While employed or generating income, the general "lifestyle graph" has a natural tendency to trend upwards. A lack of retirement planning causes a sudden drop in this graph, causing a sudden necessity to make compromises in living a generally eased lifestyle. People tend to depend too much upon the existing institutional systems in place and seem lacking in taking the initiative with retirement planning. Retirement planning needs to be a more hands-on approach with active investment and spending habits that does require some discipline. Before you start crunching numbers, you must know What is Retirement Planning.

So now we know What Retirement planning is. Let's take a look at Why is it so important?

Importance of Retirement Planning

Post-work-life

It's impossible for a person to work for their entire life, and since you have opted out from the world of paid work, it becomes indispensable to have a regular income channel to support your living. And how do you do that? By saving up when you are earning. But how much? Warren Buffet says, "an idiot with a plan can beat a genius without a plan." Well, so plan. There are many other options out there today like Equity, Debt, or Mutual funds, and investing could be planned according to one's risk appetite. But beware, "Mutual fund investments are subject to market risks; read all scheme-related documents carefully."

Retirement fund: Prerequisite of the elderly

The majority of us do not have a retirement fund. Do we? Because we have not begun with the retirement planning yet. Retirement funds or pension funds are investment avenues that allow individuals to save a portion of their income for retirement. These are as important as the emergency fund, or we can also say it is one of the essential prerequisites of old age. Also, having a retirement fund is planning for retirement is an indicator of high financial IQ. 

Did you know 51% of Indians with a defined retirement plan also have some form of alternate income?

Tax saving 

There are many 'unusual ways' of saving taxes, and that is kind of a gray area to visit but saving for retirement is very white and moreover beneficial for you. This is one of the most significant advantages of starting retirement planning at an early age. Ideally, the day you start earning is the day you start putting money in your retirement funds. Paying up tax is a good deed but losing it all to the tax is harmful to you, and what can be a better way to save it by channelizing a certain amount towards a comfy life after retirement. According to the Income Tax Act 1961, you are actually eligible for availing tax deductions up to Rs. 150000 in a financial year.

Inflation beating returns

It is not about how much you earn; it's about how much you save. But the money kept in your 'tijori' will gradually lose its value. Let's do some math. Returns on FD (the most traditional investment option that Indians choose) could maximum be 5.5% in India. Do you know what the inflation rate is? It is 6.18% for 2020. Do you see this gap? 'Investing' in FDs is not really an investment if the returns cannot even cover the inflation gap. Forget about profits. Only one in every five Indians consider inflation during retirement planning, and you won't be one of those four people now. This means the first "DOs" of retirement planning is calculating and investing in the right places that not only cover inflation but give a return that is sustainable enough after you are 60.

Cost Advantage 

Starting your retirement planning early can help you save a considerable chunk of earnings in the later stage of your life. Starting early affords you the advantage of paying a lower insurance premium, as the amount payable goes up with age as the risk factor increases, not to mention the possibilities of co-morbidities that might occur due to advancing age.

Small contributions 

Another significant benefit of starting early is that you will have to make comparatively small investments to reach the same goal for which you would otherwise have to make substantial contributions if you started late. How? Well, it is a straightforward calculation. To accumulate Rs.240 in 12 months, you need to save Rs.20 monthly, but if you were to collect the same amount in 6 months, your monthly commitments would increase by 100% to Rs.40. Now all you have to do is to extrapolate this analogy to your retirement planning.

Need of the hour

According to a recent survey, Indians don't save enough for retirement. The majority of the participants of the study stated that they have not started planning for retirement yet. But planning is the need of the hour because our country still does not have a robust social security system, especially regarding retirement benefits for its senior citizens. Pensions and EPF's might not be enough to beat inflation. As far as the data suggests, nearly 59% of Urban Indians spend most of their income on current expenses rather than saving & investing current expenses rather than saving & investing. 

 

 


Guys, Don't you think we can do better to secure our future? Yes, we can, and Recipe is here to help us with its super cool GOAL PLANNER where you can plan your vacation, dream house, dream car, Education & whatnot. But today, use it to plan your retirement.

Conclusion

Money can't buy happiness, but it can buy comfort, and that's not such a bad thing to have in old age. If you can control something as crucial as your happiness, why let your comfort and financial security during your twilight years rest on chance? Take the reins of your future in your own hands and plan ahead, can't hurt to be prepared now, can it?

Hope we sparked the kindling to keep you warm in your retirement. Please share with your friends and family and help them be aware and prepare. Let us know how far along the planning process are you in the comments section below.

Respect the elders. That you will be!!

About the Author: Prabudh Mishra | 17 Post(s)

Prabudh Mishra is a finance and behavioral economics enthusiast. He has a sense of purpose to eliminate irrationality in human behavior while they make the most crucial financial decisions in their life.

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