Planning for retirement? Here are some roadblocks to avoid3 min read . Updated: 16 May 2017, 11:02 AM IST
Smart savings in your 20s can help you lead the life you want after work. Here's what you need to know about planning for retirement
For most of us, retirement is not on the radar during our 20s and 30s. Life is all about living in the present; fulfilling our short-term goals. No matter how financially prudent we may be, our savings go towards occasions like weddings, or buying a new car. When we’re younger, the investable surplus we have is usually low, which doesn’t leave enough room for retirement savings.
In fact, many Indians are plagued by long-term financial worries. The Global Benefits Attitudes Survey 2016—released by professional services firm Willis Towers Watson Public Ltd—revealed that 56 per cent of Indians anticipate a less comfortable retirement as compared to their parents’ generation. One in three revealed they lacked confidence in having sufficient financial resources 25 years into their retirement.
One of the reasons for this is that predicting post-retirement living and medical expenses can be an extremely daunting task, because one doesn’t know how long they will live. Additionally, when it comes to retirement planning, people live in denial about their financial situation and often suffer from the “too early to plan" syndrome. After all, when you’re in your prime and earning well, it’s easy to procrastinate planning for old age. You assume you have a lot of time left; but in reality, you don’t.
Therefore, not making retirement planning a financial priority is a huge mistake.
Regardless of your expenses and goals through your 20s and 30s, it’s critical to start building a retirement corpus. Setting aside small amounts at an early age will definitely take the pressure off when you’re closer to retirement.
The need for holistic retirement planning
Everybody aspires to enjoy a relaxed retirement; one that will offer them the opportunity to take up hobbies they didn’t get a chance to, or fulfill a desire they didn’t have enough money for in the past. Some of you may want to devote your retirement years to travelling the world, building a second career, or taking up a social cause.
Retirement provides you with ample time to pursue those dreams, but as life progresses, the most crucial necessity of the post-retirement phase is often overlooked in the pursuit of money or luxuries. Axis Mutual Fund’s cookie jar experiment recently revealed this.
Even though retirement as a phase is synonymous with relaxation, one can’t truly enjoy the perks of a laid-back retirement if they are not in the prime of health. And when a health crisis occurs, you’re forced to divert your savings towards medical expenses: The same savings you hoped to fulfill your dreams with. It is best to rethink your expenses now, and adopt a holistic retirement planning approach where you make both a priority: good health and your dreams.
The right way to plan for retirement
Proper retirement planning involves understanding how much you’ll need to save, how compounding works, and how it can affect your corpus. To help you get started, use these handy tips:
•Use an online retirement planning calculator to know how much you need to save
•Start saving for retirement early to benefit from the power of compounding.
•Think about how unexpected medical expenses, as a result of a health emergency, can impact your retirement budget. Safeguard your post-retirement dreams by buying a suitable health insurance plan when you’re younger. Insurance premiums become more expensive as you grow older.
•Establish specific financial goals and estimate the money needed for each financial goal to invest correctly.
•The earlier you start saving for retirement, the more risk you can take on; it allows you to invest in equity and beat inflation, giving you a better corpus.
•Plan your investments wisely based on your risk appetite and your retirement goals.
Retirement may seem far away when you’re younger, but the closer you get, the more you begin to realize that you have very little time left to make it right. Live a healthy retirement by listing your financial goals, investing wisely, and monitoring those investments.
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