During your prime years, retirement planning might seem a distant thing to you, but essential to living a happy, secure, and comfortable retired life.
No matter what you have dreamt of for your retired life. You will definitely need money to meet your retirement goals, such as the desired standard of living, healthcare expenses, travel plans, etc.
Although expenses like commuting might reduce during your retirement, expenses such as medical might crop up. Infact, inflation is also an addition. Planning your retirement and starting to save for the same can help you overcome future expenses and reduce your stress.
In addition, it will also help you deal with emergencies and shortfalls, including controlling your cash flow, earning, and spending during your retirement.
Here are a few additional reasons citing the importance of retirement planning:
Rising Life Expectancy and Retirement Corpus:
India’s life expectancy has been increasing steadily over the years. According to WHO, “In India, life expectancy at birth has improved by ▲8.68 years from 62.1 years in 2000 to 70.8 years in 2019.”
With longer life spans, it is essential to plan for a corpus that can sustain throughout your retirement. You can create a well-thought-out retirement plan by considering inflation, rising costs, healthcare expenses, and lifestyle choices. It ensures financial stability to maintain your standard of living. You can control other expenses, but healthcare expenses are essential and can’t be compromised.
You can’t work your whole life:
In an interview conducted by money. cnn with nurse Bronnie Ware, “One of the most common regrets of dying is that they worked so hard and for so long, They missed their children’s youth and their partner’s companionship.”
Yeah, you read it right!
You can always earn more money but can’t turn back the clock and experience the freedom and love you missed. However, retirement will pave the way for you to spend quality time with your loved ones.
In addition to this, doing certain things becomes difficult as you age. Yet, you can still work on certain things you are passionate about and love to meet your post-retirement goals.
To accomplish your post-retirement goals:
Earlier, the government and organizations offered defined benefit pension plans, which guaranteed a fixed income post-retirement. However, with the shift towards defined contribution plans, individuals have more responsibility for their retirement savings. They have to plan, save and monitor their savings for their retirement.
Although investing in provident funds and NPS might cover many expenses, it might not be sufficient to cover all of them and meet your post-retirement goals.
Hence, in addition to having a proper plan and diversifying your investments in various options like ULIP, NPS, Health insurance, PPF, stocks, mutual funds, etc., you must also have complete knowledge of the retirement planning process.
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Take absolute advantage of compound interest:
The earlier you start, the more you’ll benefit from Compound interest and the more substantial your retirement corpus will be.
However, You could’ve chosen to invest your savings in a savings account or create an FD, but do you know that increasing inflation can beat its value over time?
Example: According to world data, an average inflation rate has been around 7.5% until 2021, while the bank FD interest rate has been approx 8%, which varies from bank to bank.
Hence, to save your money’s worth from depleting while simultaneously growing it. You must invest in other investment options depending upon the risk tolerance limit.
Planning early in your 20s or 30s and investing small amounts in the best investment options for your retirement will help you take absolute advantage of compound interest and accumulate a sufficient corpus by the time you retire.
The basic idea behind investing in the best options is to beat the inflationary gap and build a corpus that’ll help you live a comfortable and healthy lifestyle during your retirement.
Tax benefits- an added advantage:
The GoI has been providing various tax benefits to individuals planning for retirement.
You can contribute to various investments for retirement, like EPF, SPF, NPS, RPF, etc. They are eligible for tax deductions under sec 80C of the IT Act, 1961. In addition, an additional deduction of 1.5 lakhs is available for contribution to NPS under section 80CCD(1B).
You can benefit from these during your prime years by reducing tax liability and enhancing your retirement savings.
Example: Mr. Sharma, a 35-year-old working professional, realizes the importance of retirement planning and starts investing in an NPS account. He contributes Rs. 10,000 per month towards his NPS, which offers an average return of 8% p.a. Assuming he retires at 60, his NPS account could grow to approximately Rs. 1.3 cr, providing a substantial retirement corpus.
Stay independent, Even during your retirement:
Earlier, older people used to be dependent on their children. Their younger ones have been taking care of them. However, due to the growing lifestyle needs and inflation, it would be difficult for them to support their parents. Yet, even if they do, retirement planning can help you stay independent post-retirement and live a comfortable and happy lifestyle.
Conclusion:
Retirement planning ensures that you live a financially secure and comfortable life post-retirement. With the increasing life expectancy rate and investment options for retirement planning, individuals should start planning to save for retirement.
Starting earlier will bring together numerous benefits, from compounding and decreasing your tax liability while helping you build a substantial retirement corpus.
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