“Someone is sitting under a tree today because someone planted a tree a long time ago.” This quote from Warren Buffet perfectly sums up the impact of current actions going forward. Today’s article revolves around a similar planning strategy that will definitely help you reap its benefits in the future. Let’s dive into the topic of retirement planning and understand why planning for retirement is so important to you.
Retirement Planning: Overview
Retirement planning is the process of managing your income and expenses efficiently and marking other ways to comfortably live your life in a period when your stable income ceases. It’s a comprehensive planning process that takes into consideration your future financial goals, assets, liabilities, income, and expenses. Considering your current and future financial goals and planning to achieve those goals in a specific period of time can be called “retirement planning.” If you are a government employee or work in a place that would pay you a pension after retirement, your personal retirement planning may be slightly reduced. In any other case, a detailed planning process is required to ensure that your post-employment phase is smooth and comfortable.
So when should you start planning for retirement?
It is similar to asking, “When should I start eating healthy?” The only answer to this question is – start as early as possible. Why do you ask? If you know the magic concept of compounding, you already know the answer to this question. For those who don’t, we will help you. Compound interest is basically the interest that you get from the original principal plus the accumulated interest. In simple terms, compound interest is earning interest on interest.
If you invested Rs 10,000 today at 10% interest, you would earn Rs interest. 1,000 at the end of the year. For the second year, the interest would be calculated at Rs 11,000 and thus you would earn an interest of Rs 1,100 at the end of the second year and so on. This is the power of compounding.
To answer the question of when to start planning for your retirement, the answer would be: “start today!”
Why is it important to plan for retirement?
Fight against inflation
Inflation is an unavoidable element of your income. To ensure that you have sufficient funds during your retirement, you should focus on long-term investments. Also, investments does not mean that you should bet all your surplus on bank deposits. Although they are considered one of the safest options available, the returns they produce definitely do not provide a hedge against inflation.
Financial independence is gaining importance recently. There are many opportunities and diverse sources of income that can be earned. Having passive sources of income after retirement will help you become financially independent and not dependent on anyone else.
If we told you that you can save for your future and also reduce your tax liability, wouldn’t you want it? Absolutely. The income tax provides certain sections and provisions that exempt from taxes on investments in certain funds focused on retirement, such as the Public Provident Fund, the National Savings Certificate, etc. remove them. Be careful when choosing funds.
Meet retirement goals
Individuals have various goals set for different phases of life. Retirement is a time when people have plenty of time and would like to live their life on their own terms. Efficient retirement planning will not only help you achieve these goals, it will also keep you stress-free.
Retirement early helps reduce your current costs significantly. For example, life and health insurance are only thought of during the later stages of adulthood. At this point, the costs incurred to obtain insurance are higher. If the same can be purchased at a lower cost if purchased before. This is just an example. You can reduce the costs of several of these items by starting your retirement planning earlier.
Be prepared for emergencies
Planning for retirement also helps a person be prepared for sudden and unforeseen situations. There may be several situations where you need funds. After retirement, your chances of getting a loan are also reduced. Therefore, it is imperative that you maintain your own emergency fund.
How to plan your retirement?
Now that you are aware of the importance of planning for retirement, you may be wondering how you can plan for retirement. It really is not as complicated as you think. Following a few simple steps will help you plan effectively for retirement.
First, determine at what age you will retire and your retirement goals. Next, assess your current financial situation, sources of income, and other responsibilities. Calculate the funds that can be set aside for a long period of time. Look for investments and other long-term assets that you can invest in to reap its benefits in the future. Make sure these assets and the returns they are expected to generate are aligned with the stated objectives.
As in all successful ventures, the foundation of a good retirement is planning.” – Earl Nightingale
This quote perfectly sums up what we were trying to convert through this blog. Without a good plan, no one can achieve their goal. You never know what to expect in life, but you have one thing you can control: “your finances in retirement.” You can ensure a smooth and comfortable retirement through proper retirement planning.
We hope now you understand how important retirement planning is, and also the importance of starting early. The future is definitely uncertain, but being prepared always helps. There is no absolute solution that works for everyone. The Internet is a sea of knowledge. There are many options available from which one can gain knowledge and plan for retirement efficiently. Understand what is best for you and proceed accordingly.