Why Retirement Planning?
Retirement Planning is a process whereby you will have a road map of your personal and financial life, which will help you to meet all your life’s expenses post retirement.
Hence, Financial Planning is a comprehensive term which includes retirement planning.
Following are some of the main reasons why retirement planning is important:-
Longer Life Span –
The life expectancy of humans is consistently increasing across the world thanks to technological advancement in medical sciences. In India too, the average life expectancy of an adult of age 60 has extended to almost 78. That means 18-20 years post the working years (depending on when you retire).
No Fixed Returns –
The returns on the investments may not be fixed always. Over a period of time they may go down. So this will affect the total corpus at the end of investment. The amount of funds left with you during your retirement may go down, as the returns decreased. Therefore, this needs to be taken into account while planning for retirement.
Falling Interest Rates –
Similarly as no fixed returns, the interest rates too may fall in the future. The interest you receive on your investments will get reduced. Falling interest rates will result in the reduction of final retirement corpus required and expected. Hence, falling interest rates should be accounted for while retirement planning.
Rising Medical Expenses –
With increasing age come more health problems. Medical expenses which may make a huge dent in your income post retirement. Failure here could lead you to liquidate (sell) your assets in order to meet such expenses. Remember medical claims do not always suffice.
Medi-claim or health insurance policies sometimes may not cover all your medical expenses. Therefore, your retirement corpus must be large enough to cover your and your family’s medical expenditure to avoid a financial crunch in the later years of life.
Increased Standard of Living –
Standard of living is the way of living your life, how you are living right now and how you want to live in your retirement years. These could be travelling and exploring new places or taking up hobbies that you have always wanted to pursue.
However, if you do not plan and save for all these living habits in your working life, they cannot be continued in your post retirement years.
Hence, it is absolutely essential to have a strong Retirement Plan that will give you awareness on where you stand today, and what steps you need to take to maintain and increase your standard of living.
Early Retirement –
You never know what will happen. Your retirement may either be postponed or preponed. If it gets postponed, it is not a problem because you are still getting income. But your retirement could also get preponed, voluntarily or because of some reason. In this case, you haven’t planned for these extra years. Thus, retirement planning should also take this into consideration.
This is the main and biggest reason for retirement planning. Inflation refers to the rise in the prices of goods and services. It has the power to kill the value of your money. There has been constant rise in price of goods and services and it will continue to be on a rise until you reach the retirement age.
This means that you would have to pay more for everything in the future. From grocery to travel to accommodation, it is all going to cost you relatively more in the future. As you need to worry about it you need to account for it as well. You need to take into account inflation while calculating your retirement funds as well as your expenses.