Retirement Planning
Posted by M Gala in Areas of Financial Planning
Retirement is the period of your life when you are no longer working and you need to fund your day today expenses from your savings. Retirement planning is a part of overall financial planning process and it enables a person to enjoy the desired post retirement lifestyle. When you stop earning, you would certainly want to maintain the same (or even better!) standard of living. Post retirement, a person does not have his monthly paycheck and will have to depend on the annuity he receives from his investment corpus. Planning for the sunset years acquires added importance because people over-estimate what they have and under-estimate how much they need post retirement. People live longer today and are lot healthier today. They spend more years in retirement and therefore they need to save more to cover the risk of living more than their life expectancy. Retired people love pursuing new interests such as playing golf, going abroad etc and therefore post retirement life style is extravagant than those prior to retiring. When planning for retirement we do not know how much is enough? Although, we can draw up a plan that includes future cash flows, savings and spending assumptions, it is not always possible to accurately assess this corpus amount. To compute retirement corpus, following variables are considered:
Life expectancy
Rate of return from existing equity and fixed income securities.
Annuity from insurance schemes, pension schemes from Govt. / Pvt. sector etc.
Tax slabs.
Rate of inflation.
Growth rate in salary / business income.
Household expenses and saving rate. To achieve your life dreams, even when you stop working, one should follow the under mentioned basic principles.
It is a myth that one should start planning for retirement when you are 40 plus. If you start early, you can build large corpus for retirement. Remember the power of compounding!
Define your need and financial objectives.
Seek advice of a financial planner, who shall chalk out a plan for you. A financial planner can guide you to invest in appropriate asset class to build corpus for your retirement.
Diversification and optimal asset allocation in accordance with one's risk appetite is a key to successful financial and retirement planning.
Review your plan at regular interval to ensure you are on track. Retirement is an exiting time, but it can be a scary one unless you have a retirement plan.