‘I am just 30 years old, why do I need retirement planning?’, remarked Sachin Karkera, an NRI who has been in the Information Technology industry for the last five years. With the recent salary boom, Sachin aspires to buy a luxury four-wheeler within a year and is already paying the EMIs for his house.
He has also started planning for his one year old son’s higher education after witnessing the alarming rise in education costs. “I’m already trying hard to save for my present goals. Do I need to think of retirement planning now which is still at least 20 years away?” he retorts. But at the same time, Sachin is also content that he has been contributing Rs 15,000/- annually towards a retirement plan that started last year.
Retirement Planning is usually the most neglected savings motivator for Indians. Studies say that old age security as a savings motivator ranks far below than saving for expenditures such as children’s education, wealth creation and even unforeseen financial emergencies.
The growing need for higher education has led today’s professional to begin his career when he almost turns 25 years of age. Further, due to stressful and hectic life styles, the same professional desires an early retirement, sometimes as early as 50.
Advancement in the field of medicine helps us live longer, to almost an average life expectancy of 75 years. Which means that a professional has not only to earn for his life during his (shortened) working life (of around 25 years, as cited above) but also to provide for his retired life, which typically extends to another 25 years. Even worse is the case with nuclear families setting in.
Paying a small premium towards a pension plan to secure tax benefits under section 80C is the only step directed towards saving for one’s retirement, but the repercussions of the same will be realized only at the time of retirement, and by then it’ll be too late.
So, when is the right time to start retirement planning?
Ideally, retirement planning should begin when you start earning. For, that way you gain the most from the power of compounding of money. Even small amounts that you set aside early in life can work wonders for your retirement kitty.
How do I plan my retirement?
Planning Basics: While planning your retirement take into account the standard of living you expect at the time of your retirement, the sources of income available, inflation rates, need for lump sum amounts, need for rising medical costs, existing retirement plans among others. Create a plan and maintain discipline by adhering to the same.
Ascertain how much you’ll need: For example, lets say if you presently need Rs 2,40,000/- per annum (Rs 20,000/- per month) to maintain your lifestyle, on retirement at age 50 years, you will require approximately needs Rs 10,30,000/- per annum at an average inflation rate of 6% per annum.
Note that the said amount does not take into account any upward trend required in the standard of living. Now to save towards the abovementioned amount you need to set aside Rs. 47,500/- per annum (around Rs. 4,000/- per month) at a growth rate of 15% per annum and that’ll help you meet your budgeted retirement corpus. If you delay saving the said amount by another 10 years, you’d need to treble the required contributions per year.
Speaking about Sachin, no doubt, it may be too early for him to estimate his retirement expenses or his sources of income available during his retirement, but making an early beginning would help him reap the benefits of compounding of money.
When it comes to retirement planning making an early and planned beginning is important if your aim is to have a blissful retired life. So wake up, plan your retirement right away before its too late.
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