After a hectic day at work, when you hit the bed at night, do you dream of the day when you don’t have to work anymore? Many of us dream of a comfortable life post-retirement but only a few of us get to live a financially comfortable and stable retired life.
From my experience, I have seen the most necessary and important thing in one’s life is Retirement Planning. Due to the lack of financial awareness, they neglect this important aspect of their lives and suffer for it later. The young readers of my blog, you still have a couple of decades before your retirement, I will suggest you prioritize your retirement planning now. You may think you have a lot of time but I can tell you thats it’s a veery wrong thought.
First, we need to understand why Retirement Planning is important –
1. Retirement is not an age, it is that age when your income will be zero but your expenses will continue. To feel its implication, I want you to paint a picture and feel it at the end of time. Now think about someone whom you know has no income but has to make a living. Since most people are very busy with their daily activities, they hardly have the time to think about their future.
2. You need to understand first that for all the other financial goals or purposes like Child Education Planning, Marriage Planning, or Car & House Planning. Everything has an alternative but there’s no alternative to a retirement fund after a person retires. It is a hard but bitter truth.
I think retirement planning means it will have a few calculations but the more important aspects are a priority, thinking about the future, discipline in finance, etc. Please take a look at the picture below.
3. Now in this market of consumerism, when a young boy or girl starts earning, if he/she cannot learn to be disciplined in his financial life then he has to pay a lot more later. There are some who spend all their income and then there are some who save a portion of their income to their bank’s savings account. Then money does what it has to. It flows out like water. Money gives the owner a sense of self-satisfaction then he becomes a slave to money unable to do anything.
4. Many have not been taught which one is savings, deposit, or investment. In this case, parents too play a negative role. According to their own beliefs, they push their children to invest a huge amount in insurance or a PPF or to start a Bank FD. This generation, however, believes their internet to be their friend. After a while, they realize the amount invested is not going to help them in their future. Then they jump into EMI to buy a huge flat. As they believe, the price will increase in the upcoming years and there will be no tax exemption. The story is more or less the same in most cases.
5. Now see how the impact of this can be so dangerous. After this, there can be a grand wedding ceremony or the pressure of your child’s education. Since someone has not learned expenses management in the beginning, a philosophical thought often comes to his mind (I am working so hard in life, if I don’t enjoy today, when will I do it?) Lack of financial literacy and lack of patience makes all the noise.
6. At the age of 45, many people start thinking and realize that a lot of time has passed and they need to do something immediately. This is how he falls into a trap. The cost is increasing day by day. The monthly expenses of running a household are Rs. 45,000 now. He takes the advice of a financial planner who tells them that if he wants to continue with this lifestyle, he needs to invest Rs. 66,250 every month in order to create a retirement corpus of Rs 3 crores. This is something impossible for him at present. What most people do in this case is that they purchase some retirement product from some insurance company or start looking for higher returns, a top-performing fund, where to invest, or which is the best time to withdraw money from the market, etc. Believe it or not, it is my real experience. In this way, they get trapped in the vicious cycle again.
“You Can be young without money But you can’t be old without it”Tennessee Williams
7. If the boy had started investing for his retirement planning from the day he turned 30, he would have invested Rs 11,000 only every month. What happens is that the habit of unnecessary expenses is delayed on one hand while on the other, the amount of monthly investment required for retirement also gets beyond one’s control.
8. So what if we could identify the issues?
- Keeping a record of your Cash Flow statement i.e the income-expenditure calculations. It is dangerous to keep money idle. To know more in detail, click on this link. Idle money destroys financial discipline.
- One should plan their goals from the beginning and then start investing at an early stage.
- An emergency fund is a must, even if it has a small amount, it should be created. It is the seat belt.
- Keep in mind that the fund which will be created for retirement has two phases – the “accumulation” phase is one of them. The longer this phase, the better.
If someone’s retirement planning is based on expenditure, and by calculation, it might be found that he requires a fund of Rs 2 crore for retirement. Therefore, if someone starts investing as soon as he starts earning (say at the age of 25 years), he has to pay only Rs 1772 every month. Now if someone starts at the age of 30, then he has to invest an amount of Rs. 3,600 per month. Furthermore, if someone starts at the age of 40, then he has to invest Rs.15,250 per month. Lastly, if you start at the age of 50, then you have to invest Rs.90,000 per month.
Unless you understand the concept of the compounding effect, you will not understand the importance of time. The main reasons for your ruin are procrastinating and waiting for your salary to increase.
- The next phase is the Distribution Phase, this phase is all about consumption.
9. Today, there is no system of deduction of money for pension. So you should be alert from the beginning.
10. Those who have NPS, should sit down with a financial planner or financial professionals on retirement planning and take a look at the whole thing. Those who have a GPF or PF system must take a look at the declining Interest rate system and see how much this retirement fund can practically generate and how much requirement is necessary.
The bottom line is your income will stop at one point of time and other expenses will increase. Moreover, with the rise in inflation rate and life expectancy, you need to have enough funds to last you in your retired life.
If you found this blog post useful, please share your views. Looking forward to your valuable feedbacks.