M13: Retirement Planning

• process of determing retirement income goals, and the actions and decisions necessary to achieve those goals.

  Retirement Planning
• includes identifying sources of income, sizing up expenses, implementing a savings program, and managing assets and risk.

  Retirement planning
• Importance of Retirement Planning

  * helps in dealing with medical emergencies

  ● fulfill life aspirations

  ● be financially independent

  ● lead to peaceful and stress free life
• Benefits of Retirement Planning

  Money works for you

  Stress free life

  Tax benefits

  Cost saving
• retirement days are the days where one cannot work any longer. Therefore, it is the time when the money one earned should do all the work. To achieve this, one has to start their investments towards retirement at a very young age.

  Money works for you
• This is the most significant outcome of retirement planning. Retirement is the age where one has to relax and reap the benefits of all the hard work.

  Stress free life
• Planning for retirement at a young age will help in reducing the cost. For example, in an insurance policy the premium amount to be paid will be lesser when the policyholder is younger. While getting insurance during retirement becomes costly.

  Cost saving
• How to Plan Your Retirement

  Determine the investment horizon

  Estimate the expenses

  Have a contingency fund for retirement

  Decide on the asset mix
• To determine their investment horizon, one has to decide the age at which they want to retire. Then calculate the number of years left until retirement. Also, investors have to determine until what age they are planning the expenses for.

  Determine the investment horizon  
• The next step is to estimate the current expenses. They have to determine what are the everyday expenses that the investor has to pay regularly. This need not include child educational.

  Estimate the expenses 
• Having a contingency fund for medical expenses is a must during retirement. Medical expenses during the age of retirement can be expensive. But estimating these can get difficult. Hence, it’s advised to have an emergency fund for the same.

  Have a contingency fund for retirement
• Investors can take the help of a financial advisor and decide on the asset classes to invest in. It is suggested that investors invest in assets that give inflation-beating returns. Inflation is a significant threat to any investment. Post inflation, the real return from an investment is lower than the expected return. Hence investors have to invest in assets that give returns higher than the inflation rate.


  Decide on the asset mix
• Retirement planning also helps in tax saving.

  Tax benefits
• Investing in the early stages of life not only helps in creating a huge corpus. But also reduces the financial burden of investing a lump sum amount in creating a retirement fund. By investing at an early age, one is buying more time for their investments, thus increasing the effect of compounding on their investments. Also, they can invest small amounts regularly to reach their target amount

  Start investing early
• One major mistake people make is to use the money set aside for retirement. Investors should refrain from using the retirement fund for a child’s education or marriage or any

  other purpose. Instead, investors can plan out their life goals and allocate some amount towards it every month. This way, each financial goal will have its corpus.

  Avoid using the funds kept aside for retirement.
• The 5 Stages of Retirement Everyone will go through

  Stage One: Pre-Retirement

  Stage Two: Full Retirement

  Stage Three: Disenchantment

  Stage Four: Reorientation

  Stage Five: Reconciliation and Stability
• this stage is a time of excitement and anticipation. But it can also be a time for worry and doubt, especially in the year or two before retirement. Anxiety tends to set in when people worry that they won’t have enough money saved for when you actually retire. This stage can last 5 to 15 or more years before your actual retirement date.

  Stage One: Pre-Retirement
• People in this stage are usually busy reconnecting with family, friends, and spouses, and spending time on hobbies, travelling, and starting new businesses.

  Stage Two: Full Retirement
• Once the emotional high of retiring has worn off, and the honeymoon phase is over, many people feel a sense of disappointment and disillusionment. They have spent so much time looking forward to retirement, so once it sets in, it can feel less exciting than it was hyped up to be. And they may end up feeling like something is missing in their lives.

  There can be downsides such as boredom, loneliness, and feeling useless. And if not addressed, it can be easy to slip into a depression during this stage.

  Stage Three: Disenchantment
• Often considered the most challenging stage, reorientation usually occurs after retirees quickly go through their retirement to-do list, feel a loss of purpose, and begin to evaluate their retirement experience.

  Reorientation involves creating a new identity, and it can take some time and effort to accomplish. But once you have built a new identity, you can gain a sense of closure from your working days and move on to enjoy retirement as it’s meant to be enjoyed.


  Stage Four: Reorientation
• This final stage may start up to 15 years after the official start of retirement. Retirees in this stage are content and hopeful in their transition and will experience less depression and anxiety.

  In this stage, retirees are settled into a fun and rewarding retirement lifestyle, doing things that make them feel fulfilled. They prioritize simplifying their lives and living relaxing lifestyles.

  Stage Five: Reconciliation and Stability
• Planning for retirement 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.
• There are always emergencies in old-age. So, having a sufficient money to deal with all these is crucial. Retirement is an important reality for everyone. But it is easy to lose track of a long-term goal. This is why you need retirement planning.