In your youth, retirement may seem a distant thing to worry about. Yet, if you want to lead a comfortable and dignified retired life, financial planning is necessary. No matter what your ideal retirement looks like, be it a relaxed time at home with family and loved ones, or one of adventure and travel, it will need money.
Growing old can be expensive. Although frivolous expenses might reduce, medical bills are only likely to rise. Add to that the burden of inflation, and not having enough money to sustain future expenses can cause stress and worry. The purpose of having a retirement Investment Plan is to ensure financial stability in your later years without depending on others.
What is Retirement Planning?
Retirement planning means preparing for a steady stream of money after retirement. It entails setting aside funds and investing specifically with that goal in mind. Your retirement strategy will depend on your final goal, income, and your age.
Retirement planning is an essential part of financial planning. An increase in average life expectancy increases the need for retirement planning. Planning for retirement not only ensures an additional source of income but also helps in dealing with medical emergencies, fulfil life aspirations and be financially independent.
Step by Step Retirement Planning Guide
Retirement planning starts with thinking about your retirement goals and how long you have to meet them. Then you need to look at the types of retirement accounts that can help you raise the money to fund your future. As you save that money, you have to invest it to enable it to grow.
Following are the three steps that everyone should take, no matter what their age, to build a solid retirement plan.
1. Understand Your Time Horizon
Your current age and expected retirement age create the initial groundwork of an effective retirement strategy. The longer the time from today to retirement, the higher the level of risk that your portfolio can withstand. If you’re young and have 30-plus years until retirement, you should have the majority of your assets in riskier investments, such as stocks.
You should break up your retirement plan into multiple components. Let’s say a parent wants to retire in two years, pay for a child’s education at age 18, and move to Florida. From the perspective of forming a retirement plan, the investment strategy would be broken up into three periods: two years until retirement (contributions are still made into the plan), saving and paying for college, and living in Florida (regular withdrawals to cover living expenses). A multistage retirement plan must integrate various time horizons, along with the corresponding liquidity needs, to determine the optimal allocation strategy.
2. Determine Retirement Spending Needs
Having realistic expectations about post retirement spending habit will help you define the required size of a retirement portfolio. Most people believe that after retirement, their annual spending will amount to only 70% to 80% of what they spent previously.1 Such an assumption is often proven unrealistic, especially if the mortgage has not been paid off or if unforeseen medical expenses occur. Retirees also sometimes spend their first years splurging on travel or other bucket-list goals.
As, by definition, retirees are no longer at work for eight or more hours a day, they have more time to travel, go sightseeing, shop, and engage in other expensive activities. Accurate retirement spending goals help in the planning process as more spending in the future requires additional savings today.
3. Calculate After-Tax Rate of Investment Returns
Depending on the type of retirement account that you hold, investment returns are typically taxed. Therefore, the actual rate of return must be calculated on an after-tax basis. However, determining your tax status when you begin to withdraw funds is a crucial component of the retirement planning process.
How a Retirement Plan Works?
Retirement plans are specially built investment programmes that allow you to save money until you retire and reap the benefits of your efforts. You begin contributing a set amount to your retirement plan on the day you purchase it and continue to do so on a regular basis. When your income ends when you retire, you begin receiving a consistent income at regular times from your retirement plan. These plans frequently include life insurance coverage. As a result, in addition to wealth building, you also receive life insurance coverage.
Retirement plans work on different algorithms and frameworks depending on the type of plan, the specifications of the plan and the amount of money you invest into it. However, some of them are defined, which is discussed below.
1. A defined-benefit plan is the most prevalent type of traditional retirement plan. Employees get monthly benefits from the plan once they retire, depending on a proportion of their average earnings over the last few years of employment. The algorithm also considers how long they have been with the company. Employers and, in some cases, employees pay the cost of these benefits.
2. A retirement plan might pay 1 percent for each year of the individual’s service times their average wage for the final five years of employment. Corporate retirement plans provided by corporations or other employers rarely include a cost-of-living escalator to account for inflation, so the benefits provided can lose purchasing power over time. Public employee retirement schemes tend to be more lucrative than privatized ones.
3. Retirement plans need your company to contribute money to your plan as you work. When you retire, you receive all of your accrued retirement funds in monthly installments. In most situations, a formula determines how much you get when you retire, leading to varied payments for different people. Your age, compensation, and years of service to the organisation are all factors in the algorithm.
Retirement Planning Calculator
A retirement calculator is a simple tool that allows you to figure out how much money you will need after you retire from paid, active work.
The retirement calculator takes personal details like age and desired retirement age, details of current income, savings and investments, and expenses. Based on these details, it calculates how much money you will need to grow your wealth for a hassle-free post-retirement life.
The pension calculator then helps you choose the right pension plan you can start investing in towards meeting your financial goals post retirement.
Click to use the retirement planning calculator to find the corpus required for a well planned retirement
You cannot know what can go wrong in the future. But you can control your financial stability with proper planning. However, you should choose your retirement investments with care to secure your finances. You should trust only reliable retirement plan providers with strong financial ratings.
Retirement planning is one of the most important parts of our financial planning. You can’t run from the reality that sooner or later your professional life will come to an end and you will be relying on the savings and investments you have made.
Need Help For Retirement Planning?
With all these benefits one can’t deny the fact that this is indeed a massive investment break that you must not give up on.
Start today! We have helped many out there to secure their future. Let us secure yours’s too. Let your future be in our hands where we help you plan for your future from today. Visit retirement planning consulting services or Just Call us on +91 20 25551000 for more details.