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When should you start retirement planning and How?

Posted By: Admin
November 20, 2022 |

Key Factors, you should consider while retirement planning, Best way to plan retirement

Retirement Planning: Planning retirement is a multistep process which needs focus and the right strategy to have a secure and comfortable retirement. Retirement Planning is a financial cushion you create at an early age to spend in days when you are old. It’s a fact that many people do not think of planning for retirement at the right age. Many of them do not invest enough and do not save sufficient money to enjoy their retirement.

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The retirement age has considerably reduced by 5-10 years from the typical age of 60 years. This is happening not because of laziness or due to health issues. The factor behind early retirement is that today’s youth want to explore the world and enjoy life at an early age. People want to roam around the world, spend time touring, with families and to live their hobbies.

Here in this article we will know about the correct steps you need to take at the correct age and also about investing sufficient amounts to plan fun retirement.

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Table of content

How Much You Should Save for Retirement?
Factors to Consider while retirement planning
Risk Tolerance
How Much Should I Save for Retirement?
What Age Is Considered Early Retirement?
Retirement Planning Investment options in India
Tips for retirement planning

Basically, Retirement planning depends upon the goals you set and expenses you want to meet when you think you won’t earn. For which you need to invest in the right direction to create a fund to meet planned expenses.

Retirement planning typically includes determining time horizons, estimating expenses and after-tax returns, assessing risk tolerance etc.

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Lets see How Much You Should Save for Retirement?

Amount you should save for retirement depends on the factors like how much do you earn? At what age you are planning retirement and goals you have set after retirement. Hence there is no fixed rule about how much money to save.

However, experts say that you should save about Rupees 75 Lakhs to 1 Cr to have a comfortable retirement.

Experts also recommend the 4% rule, the rule suggests that a person should NOT spend more than 4% of their retirement savings each year in order to ensure a comfortable retirement.

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Factors to Consider while retirement planning

There are some key factors which affect your retirement goals such as

Your family plans and children’s career planning
Changes to your home or residence as people dream of travelling during retirement.
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Let’s discuss key factors affecting retirement planning in detail –

Calculate Time Horizon Correctly

Make a strategy to plan retirement. This depends on your current age and expected retirement age. You should correctly work on an effective retirement strategy. You should work on your risk appetite and ability to invest.

If you plan your retirement at an early age, say 20 – 25, you would have 30 plus years until retirement. Hence you can invest in comparatively riskier assets like equity and mutual funds. If you are planning to retire at a later stage say 30 – 35 years, you can invest in bonds which are less risky but yield good returns.

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Determine Retirement Expenses and Plan Spending

While making a good retirement strategy, set realistic goals and spending habits. Expenses like instalments, Loans, Insurance Premiums, medical expenses should be included while planning retirement.

Also, forecasting unrealistic expenses and speculating about spending habits and needs may destroy your strategy to plan retirement. You should not understate or overstate your expenses after retirement.

Experts say that the cost of living is increasing every year. Now people are living longer. People will need to save and invest keeping this in mind.

Risk Tolerance

The base of retirement planning is risk tolerance. This decides how much of a loss a person is willing to endure within your portfolio.

Risk tolerance depends on a number of factors which include financial goals, income, and age. If you plan your retirement at an early age your risk tolerance will be higher than a person who plans retirement at a later age. Accordingly, If you are earning high, your risk tolerance will be high compared to a person who is earning less annually.

The risk tolerance also depends on your financial goals and spending habits. If you need to incur in valuable assets or planning children’s marriage you may need to save more which will lower your risk tolerance. Similarly, if you do not have such obligations you may have high risk tolerance.

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How Much Should I Save for Retirement?

As discussed above in this article, this majorly depends on your age and income. However there are some rules about investment for retirement planning and savings.

One rule of thumb to save for retirement is to save 15% of your gross annual earnings every year. Invest in right instruments like mutual funds, bonds, fixed deposits, insurance, government schemes and other deposit schemes. Also you can take help from financial experts to plan for retirement.

You should also think of inflation while planning for retirement. The investment should face the inflation rate in order to have spending power after retirement. Cost of living will be increased by the time you retire due to inflation, hence you should save by keeping inflation in mind.

What Age Is Considered Early Retirement?

In India, the retirement age is considered 60. However in some cases it may vary. But now the youth wants to retire early and enjoy roaming around the world. People are considering the age of 50 as the best age to retire.

There are theories which explain the benefits of early retirement. To retire at an early age you should plan your spending habits and increase your earnings. A challenging aspect of creating a comprehensive retirement plan is to maintain balance between realistic return expectations and a desired standard of living.

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Retirement Planning Investment options in India

There are many options available to invest for retirement planning. Some of them you can read here. Mainly, you can decide to invest based on the risk you want to bear. High risk investment options may fetch you high returns like equity and metal investments. Where as, Low risk investment options will fetch you compounding return.

NPS – National Pension Scheme – This scheme is designed by the Central Government of India and the Pension Fund Regulatory and Development Authority (PFRDA). Investment in NPS is less risky with compounding returns. You can create a good corpus with continuous investments.
SIP – Systematic Investment Plan – SIP is a better way to invest in mutual funds for retirement planning. SIP is a systematic approach to investing in mutual funds. You can decide the amount which you want to invest and till when you want to invest. Experts usually manage the mutual funds. However, mutual fund investments are high risk investments.
PPF – Public Provident Fund, FD, Bank Deposits
Tax-free Bonds
Bank Recurring deposits and Post office monthly income scheme

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Tips for retirement planning –

You should start planning for retirement as early as possible to take advantage of the power of compounding.
People at a young age can take more risk while investors closer to retirement need to be more conservative.
Always keep in mind that retirement plans evolve through the years, Hence you should rebalance your portfolio from time to time.
While making a strategy to create a retirement fund keep your career, family, retirement age, and post-retirement goals in mind.

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