What Is Retirement Planning And Why Do You Need It?
Retirement financial planning falls into an essential aspect of financial planning. It simply means being prepared financially for all aspects that your retired life includes such as healthcare expenses, miscellaneous expenses etc. Having a retirement plan in place not only ensures an additional source of income but also helps in any unexpected medical expenses, life aspirations so that you can be financially independent well into your golden years.
Having retirement planning in place simply ensures that you are investing as per your goals and are on track to meet them by the time you are ready to retire.
Why is retirement planning important?
Early retirement plan entails two components - financial and personal planning. Personal planning helps you determine what your goals for retirement are - what will make you feel the most content and happy? Once you figure your goals out, you can then do the work of beginning to plan financially to help achieve those goals. How do you want to spend your retirement? Do you want to travel? Do you want learn some new skills? There are so many different ways one can spend their retirement, and this is bound to look different for everyone.
After you’ve narrowed down your goals, you can determine your financial needs. Having a rough idea of how much money you need will help you create a retirement fund that is adequate.
There are multiple reasons why retirement planning is important:
- You cannot keep working for the entire duration of your life
- Average life expectancy is steadily increasing
- You could have unexpected medical emergencies
- You can spend your retirement fulfilling life aspirations that you otherwise did not have a chance to do
- You do not have to rely on family and can remain financially independent
What are the benefits of retirement planning?
- Your money works for you: For the entire duration of our work life, we work extremely hard for our money. But by the time you retire, it’s time your money starts working for you instead. This is why it is important to start your investments when you are young, so that your money has more time to work for you. This is first aspect in your retirement planning process. If you start your investments when you’re younger, you can generate significant returns in the future. Your retirement fund should be a well-diversified portfolio that has the capacity to generate enough returns during your retirement.
- Tax benefits: Many investments also give you tax benefits. Some even qualify for tax exemptions. Some of them are long term investments that are suitable for retirement. Explore which investment options are applicable for tax saving as well as retirement planning.
- Cost saving: The earlier you start your retirement planning process, the more you can reduce the cost. In insurance policies, the premium to be paid when the policyholder is younger is lower. The older you get, the higher premiums you pay for insurance. Consider the annual savings you can have on your premium amount if you start this process early!
To sum up, there is no perfect time to start retirement planning. Your finances will look different in different stages of your life. But with an early retirement plan in place, you can ensure that you accumulate sufficient corpus for whenever you plan to take a break. By spreading out your investments, you can reduce the burden on your regular income.
AN July 15/22