I believe that while people are busy planning for their children’s future, like their studies, marriage, lavish lifestyle, foreign travel etc., they just ignore their own retirement planning.
Retirement is that stage in life where people have the time to fulfill all those hobbies and dreams which they could not pusue during their young age due to time constraints. However, it is essential that people realize that there will not be any regular income to satisfy their basic needs post retirement.
Why is retirement planning so important?
- In older days, people used to live in a joint family, so even after one’s retirement it was easy to bear household expenses as it was considered the responsibility of the younger members of family to bear the expenses of their elders. But nowadays nuclear families are more popular and if we do not plan properly, then it becomes very difficult to satisfy even basic needs after retirement.
- Previously the average age of a person used to be 60-65 years, which in today’s time has increased to 70-75 years. (Date source: United Nations-World Population Prospects) So if a person does not plan for retirement properly, then the expenses incurred to live longer after retirement will be difficult to bear.
- As we know that inflation is increasing day by day, the effect of inflation, which seems to be small in the short term, can be higher in the long term. This means that an individual will have to pay more for all expenses in the future. Thus, while performing vital retirement planning, you can consider this determinant and generate a sufficient retirement fund for your future to live a peaceful life.
- Nobody can predict the future, in such situations, it is best to be prepared in advance and retirement plans are the best way to secure the future for financial needs. Aretirement plan, can help you ensure that you are not financially dependent on someone else in case of a medical or any other emergency situation.
- Until a few years ago, the interest rates for investments were also high, due to which after retirement people could fulfill their financial needs by the means of interest income which may not be possible nowadays because of low interest rates on financial instruments. So it is even more important to invest in a good retirement plan at a young age.
I want to explain through an example why timely retirement planning is important.
If a person is 35 years old and his retirement age is 60 years then his earning age is 25 years and we also assume here that his life expectancy after retirement is 75 years then he has 15 years after retirement to live.
Let’s assume that if the expenses of that person today is Rs. 30,000 per month, then after 25 years from today, the person will need about Rs. 1,02,000 to meet the same expenses (at assumed inflation rate of 5%). He will need about Rs. 1.70 crore at the time of his retirement to meet his expenses for 15 next years (the assumed rate of investment of retirement money is 6% and assumed inflation rate is 5%). If he invests to create this retirement corpus today, then he will have to invest about Rs 18,600 every month (at assumed 8% annual interest rate).
But if he does not invest from today and starts investing to create this retirement wealth even after 5 years from today, then he will need about Rs 30,000 per month instead of Rs 18,600
Note: The above illustration is only educative in nature and not an attempt to predict the same
With the help of this example, I am trying to explain to you that if any person delays his retirement planning, then he will need more money to accumulate the same amount of money.
I n summary, retirement planning is as important as other financial goals, as it helps ensure a happy post retirement life.. If you do not plan properly for your post-retirement life, then after retirement you may not be able to rectify that mistake.
Views are personal: The author – Manish Maheshwari of निवेश मित्र™ is MFD a Mutual Fund Distributor
Disclaimer: The views expressed are of the author and are personal. TAMPL may or may not subscribe to the same. The views expressed in this article / video are in no way trying to predict the markets or to time them. The views expressed are for information purposes only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any manner for the consequences of such action taken by you. There are no guaranteed or assured returns under any of the schemes of Tata mutual Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.