M13: Retirement Planning
Cards (23)
- process of determing retirement income goals, and the actions and decisions necessary to achieve those goals.
- includes identifying sources of income, sizing up expenses, implementing a savings program, and managing assets and risk.
- Importance of Retirement Planning
- Benefits of Retirement Planning
- 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.
- 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.
- 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.
- How to Plan Your Retirement
- 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.
- 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.
- 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.
- 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.
- Retirement planning also helps in tax saving.
- 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
- 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.
- The 5 Stages of Retirement Everyone will go through
- 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.
- People in this stage are usually busy reconnecting with family, friends, and spouses, and spending time on hobbies, travelling, and starting new businesses.
- 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.
- 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.
- 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.