The idea of planning for retirement at a young age may seem unconventional to many. However, there is significant merit in starting early. When individuals begin earning, the focus often lies on fulfilling immediate financial goals rather than preparing for long-term needs.
A significant 57% of urban Indians worry their retirement savings will deplete within a decade, while only 24% are confident their savings will last beyond that. Alarmingly, 31% remain uncertain about the corpus needed to maintain their current lifestyle post-retirement, highlighting the need for better retirement planning and awareness, per a recent retirement survey.
While retirement might seem distant, establishing a financial plan early on will yield benefits in the future. Retirement planning is an essential component of a sound financial strategy, providing ample time to address potential challenges that may arise. Here are some tips to ensure financial security in retirement:
Setting the foundation: Evaluating financial goals
Effective retirement planning begins with assessing financial goals. Individuals must consider factors such as the expected retirement age, which typically is around 60 but can vary for those in gig economy professions or contract work. Regardless of retirement age, planning for a retirement corpus requires accounting for lifestyle expectations, potential medical expenses, inflation, and life expectancy.
Assessing retirement needs
Assessing retirement needs involves a comprehensive evaluation of several key factors. First, it is essential to calculate future living expenses, including healthcare, housing, and leisure activities. Additionally, the impact of inflation on future expenses and savings must be considered to ensure financial stability. Finally, planning for a longer retirement period is crucial due to increased life expectancy, which currently ranges from 69 to 74 years.
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Importance of starting early and staying consistent
Starting early and maintaining consistency are crucial for successful retirement planning. Beginning investments in one’s early 20s allows for wealth accumulation over time. Consistent savings and investment in annuity plans can provide financial security for both individuals and their dependents. Given that retirement goals vary, each person will require a different retirement corpus.
Exploring retirement-specific financial products
Key financial products for building a retirement corpus include guaranteed income plans and National Pension Scheme (NPS). Guaranteed income plans ensure a fixed income stream during retirement, providing financial security. These plans can be structured to start payouts immediately upon retirement or at a later date, as required, and often include a death benefit, offering financial protection to the policyholder’s family. The NPS is a government-backed initiative designed to build a corpus which can be utilized to provide financial security during retirement.
With a minimum contribution of ₹500, it is a low-cost investment scheme suitable for everyone. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS offers flexibility and can be managed from anywhere.
Diversification
Diversifying investments is crucial for prudent asset allocation and risk mitigation. Periodic reviews of the investment portfolio can help adjust based on market conditions and changing personal goals.
Leveraging employer-sponsored plans
Employer-sponsored retirement plans, such as the Employee Provident Fund (EPF), Voluntary Provident Fund (VPF), and the Corporate NPS solutions provide excellent opportunities for building retirement savings. These plans often include employer contributions and offer tax benefits, making them an efficient way to grow a retirement corpus.
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Addressing healthcare costs
Securing adequate health insurance coverage is essential. A sufficient sum insured can help cover medical emergencies during post-retirement days and reduce out-of-pocket expenses. Critical illness coverage can protect against high treatment costs for serious ailments, preventing financial strain.
Without a well-thought-out strategy, individuals risk facing financial hardship during their retirement years. For those seeking a financially secure retired life, planning beforehand is crucial. By taking informed and proactive steps, individuals can create a solid retirement plan that provides financial security, stability, and the freedom to enjoy their golden years without financial stress. After all, old age should be about peace of mind, not worry.
Ranbheer Singh Dhariwal is CEO, Max Life Pension Fund Management
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