What Is Retirement Planning? Steps To Build A Secure Future

Introduction

Ever heard those grandpa's stories where he would often state how their fathers and forefathers lived for more than 80-90 years? Questioning the same now feels like a question in itself. Who knows how long we are going to live when people die early in their 50s? And in recent years, the human expectancy has at least sustained at 70 years. All thanks to healthcare facilities.

While living longer has become possible with such advancements, the need to sustain financially during post-retirement years is crucial. It hypes even more when you see rising inflation and medical costs. And that's where the concept of "Retirement Planning" emerges.

Stay tuned as we explore the importance of retirement planning for individuals, HNIs, and UHNIs, when and how to plan for retirement, different investment options, and much more in this blog.

What Is Retirement Planning?

Retirement planning refers to the process of managing finances and creating a strategy to sustain the post-retirement years. It is typically a plan developed for the future when you retire from work. It helps you save money and invest regularly during the working years. Once these investments mature, retirees can either encash them in a lump sum or in installments.

There are certain stages in retirement planning that can help you make this decision. Each stage has its priorities and requires a specific set of actions. For example;

Early Career Stage (Ages 20–35)

At this stage, people have just begun their careers, which means they also manage their finances. Although retirement feels a bit far, starting early can make a big difference. Hence, it becomes crucial to learn about retirement planning. This small habit of saving can benefit from the power of compounding.

Mid-Career Stage (Ages 36–50)

With age, income increases, and so do associated responsibilities. This is an ideal time to focus on retirement goals while simultaneously growing your savings. Subsequent changes can be made to the investments, and the portfolio may also require diversification.

Pre-Retirement Stage (Ages 51–60)

Now, time seems to pass faster, and retirement seems closer. It signals the HNIs and UHNIs to secure their wealth and ensure adequate financial stability. One study suggests that medical costs already absorb 62% of a person's retirement corpus. In such times, having a predecided emergency fund for unexpected medical bills works. Also, by this stage, one must not have any debt or liability.

Retirement Stage (Age 60 and Beyond)

Once you retire, the focus should not be on investing but on maintaining financial stability. At this point, opting for annuities or dividend-paying funds can secure the retirement stage. Manage your savings, ensure timely withdrawals, and enjoy your retirement days.

Why Retirement Planning Is Important?

According to a report, many Indians save only 10-12% of their income for retirement. So, whether you are an HNI or UHNI, understanding why retirement planning is important helps to figure out how you wish to live your retirement days.

Some key reasons include:

• It gives a chance to live financially independent in post-retirement age.
• Financially prepares you for any medical emergency.
• Early retirement planning allows you to retire early (once goals are achieved).
• Another impressive reason is that retirement planning helps in leaving savings for your children and family. It supports your family with any contributions needed to accomplish goals, even in your absence.
• You can fulfill your retirement wishlist and live the lifestyle you desire.
• Accounts for inflation and dissolves any stress related to financial problems.

Step-by-Step Guide to Plan for Retirement

With the approaching retirement, 88% of Indian workers have no retirement corpus or plan in place. With the help of this 7-step guide, you can decide how to plan for retirement.

• Decide on your retirement age - in short, when you wish to retire.
• List and define your retirement goals - determine the kind of lifestyle you want to have post-retirement.
• Prepare a list of expenses that may arise in those days.
• Estimate the total corpus amount required at that stage.
• Decide on the investment options and the amount to be invested monthly from the savings.
• Track them and align the portfolio as per the set objectives.
• Choose how you wish to receive your retirement corpus (regular income or lump sum).

Investment Options for Retirement Planning

When it comes to retirement planning, it's not only about saving—it's about smart investing to secure your future. Here are key investment options to consider:

Investment Option	Features
EPF (Employees' Provident Fund)	Employer-employee contribution with certain tax benefits
PPF (Public Provident Fund)	15-year lock-in investment, Tax-free and government-backed
NPS (National Pension System)	Equity-debt mix, annuity on retirement, tax benefit
Mutual Funds (SIP/ELSS)	Mostly, equity-based growth, tax-saving (ELSS), along with a flexible investing facility
Fixed Deposits (FDs)	Predetermined interest rates and periodic interest payments.
Equities (Stocks, ETFs)	Direct exposure to the stocks listed in the market with high potential yields
Gold / Sovereign Gold Bonds	Leveraging gold’s price as investments and SGBs offer interest payments along with capital gains.
Real Estate	Potential to earn rental income and property appreciation as well.

Key Points To Remember While Planning For Retirement

After understanding the importance of retirement planning for your future, there are certain key points or mistakes people often make before starting to plan for retirement. For example;

• Ignoring inflation and how it can impact your investments.
• Starting too late, assuming retirement is too far.
• Neglecting the power of diversification and focusing on only one type of asset.
• Making premature withdrawals before retirement, thus shrinking the maturity amount.
• Overlooking healthcare costs and tax implications.

Final Thoughts

Retirement is always associated with the fulfillment of dreams, but it is much more than that. Considering a proper strategy for planning your retirement days can help you achieve those objectives. Be it fixed-income investments, bank deposits, equities, bonds, or real estate, investing can bring you one step closer. If you want to enjoy your retirement days with ease, retirement planners can provide better guidance in this domain.

Disclaimer: The information, illustrations, and calculations provided in this blog are for general informational purposes only and should not be construed as investment advice or a recommendation to buy, sell, or hold any financial product. All examples and figures are purely illustrative and may be based on assumptions that can change over time. Actual results may vary and are subject to market risks and other factors. Readers are advised to independently verify all information and consult a qualified financial advisor before making any investment decisions. Neither the author nor AR Preferred shall be held responsible for any loss or liability arising from the use of this information.