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What is the importance of retirement planning?

Finance

What is the importance of retirement planning?

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People often ignore retirement planning because who wants to think of old age when one is in their prime youth? However, those who do not take retirement planning seriously often have a tough time building a solid retirement corpus. If you do not have enough money in the retirement corpus, you may have to compromise on your current lifestyle. Since most of your regular income will come to a standstill, failing to build a commendable retirement corpus will only mean that you should start getting used to living on a fixed income.

retirement planning

What is retirement planning?

In simple terms, retirement planning means creating a steady financial resource that will help you with your post-retirement financial woes. After you retire, expenses like traveling to work may stop, but other recurring expenses like house rent, utility bills, monthly groceries, etc., remain. With proper retirement planning, if you manage to save and invest a fixed sum regularly till you retire, you might be able to build a commendable corpus that will help you take of all such expenses.

Why does one need retirement planning?

When you grow old, you may face some unforeseen financial emergencies. At that time, you do not want to financially burden your children or want to depend on your estranged relatives for financial favors. Having a solid retirement corpus ensures that you enjoy financial freedom even after retirement.

Benefits of retirement planning

Unlike the USA, with the 401K policy for all retirees, India does not have a retirement policy for its senior citizens. Most individuals rely on employee provident funds and public provident funds for retirement, but these might not be enough for you to take care of all your post-retirement needs. Thus, planning for your retirement well in advance will only assure that you have a decent corpus in your kitty.

The medical costs in India are constantly on the rise. Ten years ago, the average consultation with a physician cost around Rs. 300 to Rs 500. The exact consultation charges in private clinics and hospitals have risen to Rs. 2000. Imagine the kind of medical bills you will have to pay when you reach retirement age. If you start planning for your retirement early then, you will have saved enough to take care of all your medical expenses and do not have to rely on anyone for financial favors.

How to plan for retirement?

You can consider building a solid retirement corpus by investing in mutual funds schemes like hybrid funds. Hybrid funds invest in equity and debt asset classes, making their portfolios well-balanced. Since investors planning their retirement might not want to expose the entire investment sum to the dangers of volatile markets, a mutual fund portfolio consisting of both equity and debt might work in their favor.

Hybrid funds are designed in such a way that they try to combine the best of both asset classes under one single investment. The equity component of the hybrid fund takes risks to create generate higher returns. On the other hand, the debt component offers the much-needed cushion, especially when the equity markets turn volatile.

To build a commendable retirement corpus, investors must ensure that they invest at least 15 to 20 years. So, to ensure that they support a small sum regularly, investors can opt for the monthly SIP option. A systematic Investment Plan (SIP) is the best way to create long-term wealth like a retirement corpus.

Todd R. Brain

Beeraholic. Zombie fan. Amateur web evangelist. Troublemaker. Travel practitioner. General coffee expert. What gets me going now is managing jump ropes in Africa. Had a brief career working with Magic 8-Balls in Libya. Garnered an industry award while analyzing banjos in Prescott, AZ. Had moderate success promoting action figures in Pensacola, FL. Prior to my current job I was merchandising fatback in the aftermarket. Practiced in the art of importing gravy for no pay.

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