Lets understand retirement planning in form of Questions and Answers:
Q. What is retirement planning?
A. Retirement planning is the process of planning and managing your finances, be it short and long-term, to achieve your financial dreams both during your working years and and beyond. It includes developing a complete retirement roadmap from your existing financial position and future cash flows to the financial objectives.
Q. Why is retirement planning needed?
A. Not having a judicious retirement plan runs the risk of outliving your savings and making yourself unable to maintain the desired lifestyle in especially when you are not working. There is also a risk of not being able to accumulate enough for your dependants owing to unfortunate and untimely death, disability etc.
Retirement planning enables you to determine how much to invest today for this phase of life; how to invest your savings to get the desired returns; how to protect your assets and howto ensure legitimate source of retirement income.
Q. What are the benefits of Retirement Planning?
A. Retirement planning enables you to maintain your lifestyle during retirement. It helps you plan for important life stage events leading upto retirement. It provides financial freedom to you and your dependents by enabling you to make prudent investments during your working years. The most important benefits of effective retirement planning is to have contingencies arising from uncertain events which can compromise your ability to meet your financial goals covered.
Q. Is retirement planning relevant in India?
A. With looming demographic challenges, India faces a swelling non-working elderly population. Further, as the life expectancy of Indians increases, the years in retirement is also expected to be higher day by day requiring you to fund a longer retired life. IN India you are also required to fund children marriages, their higher education, enabling them till the earning starts; this also adds to a need of proper financial plan. Also unclear family system making its way deeper, self-support during non-working years is the new world order. Rising medical costs and other essentials means you need to save and invest that much more and with proper planning. Therefore, a planned approach to retirement is a must.
Q. How to do a Retirement Planning?
A. Retirement planning is not an art but a scientific process which requires taking a 360 view approach to understanding one’s current financial health, long-term goals and risk profile to design a plan that matches the retirement and other long-term goals of an individual.
It involves a methodical approach:
Step 1: Defining your financial and retirement goals
Step 2: Understanding your current financial situation
Step 3: Risk Profiling
Step 4: Asset Allocation
Step 5: Investment Allocation Strategy
Step 6: Periodic Monitoring and Rebalancing
It is necessary to seek expert / professional advice and create a complete roadmap based on the different stages of your life to meet your financial goals.
Q.Is Retirement Planning different from Financial Planning?
To start with financial planning can be referred as a process of setting goals vis-à-vis your current income. It includesanalysing your currents savings and assets, estimating future financial needs, and making future plans to achieve milestones. On the other hand Retirement Planning goes beyond financial planning or providing investment guidance and is aimed at achieving financial freedom for retirement. It is aholistic solution to achieve their financial goals both before and after retirement.
Q. When should I retire?
A. It’s a million dollar question, which has no answer. Actually there cannot be one right time for retirement. In fact; whether or not to retire is a decision that only you can take. If we have to identify a situation that when one can retire; we would say If your financial position, medical condition, age and feelings about your professional life all point towards retirement, it’s time to call it a day. Ideally you should work as much as you can.
Q. When do I start my Retirement Planning?
A. It’s should be as of yesterday. We all know the cost of delay in investment. Remember wealth creation is a long drawn process and usually lasts through your lifetime. Wealth is created with compounding of money, and compounding is highest in the long run. Therefore earlier you start the more time your money gets to multiply. By starting early with your retirement planning you can benefit from the power of compounding, manage the longevity risk and maximise your returns from high-risk and aggressive investments options. It’s always wise to start investing early.
Q. If I start late, can I still plan my retirement?
A. You have heardabout early bird discount and it catches the worm. Beginning late with retirement planning encounters many difficulties for creating a thick corpus and sufficient wealth to see you through retirement. However, the good part is that it’s never too late than never. Mind you, all is not lost if its delayed and you can cover for lost ground. Following measures can help you to make up for starting late:
- Control expenses or reduce expenses.
- Have an expert advice/professional help to define a roadmap to optimise your investments without impacting your standard of living.
- Make smart choice of investments that give you more returns.
- It is always nice to have a spouse who is working to have an additional income.
- Look out for another source of income, while the existing continues.
- Don’t wait; Start now.