Saving money for ‘after retirement life’ is a very important part of a solid financial strategy. Starting your future preparations early provides you with sufficient time to save funds for a better life after retirement. When you begin to earn money, you are too young to understand the importance of saving money for retirement and you feel that you have sufficient time for saving money for retirement. But you should keep in mind that being prepared is always in your best interest. You should financially prepare yourself for your future life. Everyone has a vision of how their life will appear after retirement. It doesn’t matter what you think about your after- retirement life, but basic financial support is necessary to uphold your quality of life.
Important factors of retirement planning.
There are many factors which contribute to the importance of retirement planning in life. Preparing for retirement should be started as soon as you receive your first salary. Savings made for retirement planning essentially involve many factors:
- Setting the income goal for retirement: You should set an income goal for your after- retirement life. You can decide about this goal by having an idea of the minimum monthly income required after retirement for you and your family.
- Assessing income sources to achieve goals before retirement: You should assess what the necessary steps are to take so that you can achieve your goals at the time of retirement. For achieving goals, you should opt for some schemes for savings which can be invested for giving returns after retirement to enhance your financial status.
- Follow investment strategies for savings: After making an assessment of your source of income to reach retirement objectives, you should follow some strategy to earn income for retirement. You are needed to invest funds in such schemes which will be beneficial after retirement.
- Assess Inflation: Inflation can deteriorate the value of your earnings. To cope up with inflation, you need to put your money into such financial products that could provide returns according to inflation over a period. This will help you in receiving the funds to maintain a high-quality lifestyle after retirement.
Advantages of saving for retirement.
It is very important to have financial security. It simplifies many aspects of life. Retirement planning and saving money both are very important things. It provides the assurance of financial security for life. There are many advantages of having a good retirement savings plan:
- Self-sufficiency: If you don’t have any savings for your after-retirement life, you can be a liability to your relatives as you grow older. Depending upon others for your expenses can be very humiliating and disturbing. Planning for retirement enables you to sustain a comfortable lifestyle without relying on relatives.
- Fulfilling your dreams: Many people view retirement as an opportunity to fulfil their dreams that were overlooked because of more urgent responsibilities in life. When you have good savings for retirement, such aspirations can easily become a reality.
- Longevity: The financial strength will be helpful in taking care of your physical health and also relieve you from mental stress. If you have a good savings for post retirement life, it will be helpful in improving your standard of life and ultimately will increase your length of your life.
- Healthcare Expenses: Every day, the expense of medical care is climbing to new heights. At the time of health issues, the financial expenses can create a severe dent in your savings. As you know, getting older makes you more vulnerable to diseases. With progressing age, it is crucial to plan for retirement to cover these costs and avail good healthcare when necessary.
- Tax Assistance: When you go for any job and earn money, it is your priority to lower your tax liabilities and increase your savings. The Indian government gives some relaxation in specific taxes on various financial schemes; that is a big advantage for you. You can add these savings into your retirement planning strategy. It is a nice approach to prepare for your future by saving money through saving tax.
Common mistakes to be avoided in retirement saving.
In most of the cases, people don’t take retirement savings very seriously. But when they get retired and their main source of income stops, they face many problems. If you avoid some common mistakes in retirement savings, you will find your life easy and comfortable. The common mistakes that people usually make are: not initiating savings early enough, miscalculating the necessary amount to save, drawing from retirement funds for other life objectives, lacking investment diversification, overlooking healthcare expenses, retiring with liabilities and not preparing for unexpected costs, etc. The main mistakes you should avoid are:
- Late starting of saving for retirement is the biggest mistake: The ideal time to start saving is right when you start earning money. If you begin your career between the ages of 21 and 24 and your retirement is at 60. You will have approximately 35 years in your hand to save money for retirement. During this period, you can save and invest funds for future planning as the maximum income comes from savings and investment returns. Thus, the earlier you begin, the larger funds you can build by the time of your retirement. The compounding of funds brings a huge benefit to you. It indicates that the sooner you begin saving, the greater duration you have for your money expansion.
- Failing to follow a good retirement savings strategy: Saving for your retirement requires a long-term commitment. You should be dedicated to saving and investing during the years before your retirement. But when you don’t have proper strategies for saving and investing funds, you find it difficult to accumulate your retirement savings. So it is essential to have good saving and investment strategies. You should start this planning by calculating your monthly financial requirements in your post-retirement life, considering your family size, the dependents you may have after retirement, and the expenses for everyone, including yourself. An annuity plan is a financial tool created specifically to address your financial requirements post-retirement which
- offers you a guaranteed income after retirement for a comfortable lifestyle. This will provide you with consistent pay-outs that enable you to manage your daily expenses along with significant life costs like medical bills, wedding expenses for your child, and repayment of outstanding loans. Moreover, you can also be eligible for tax benefits.
- Ignoring healthcare expenses: In your young age, you don’t understand the importance of healthcare, as in early age you remain fit and you are unable to assume the problems which come in old age. But it is the period when you can face serious illnesses and health issues. As you get older, the chances of serious health issues increase and your medical expenses also rise as well. Covering these essential costs can greatly impact your savings. Consequently, it is essential to have medical insurance at an early age.
- Mismanagement of debt: If you have not managed your loans during your service period, it can create problems for you. Because without any regular income and a limited source of funds, handling debt after retirement can be challenging. You should not make this mistake. You should clear all the loan repayments before retirement, as when you are in service, you have a regular source of income. Try to clear or reduce all the loan liabilities as much as possible before getting retired. Repaying loans after retirement can impact your retirement income.
- Withdrawing funds early from your retirement account: During your service period, you have regular income and you are in a position to save money for post-retirement life. But if you withdraw funds prematurely from your account which you are maintaining for post-retirement, it will not only disturb your total savings and planning but also raise your tax obligations. Eventually, making such withdrawals spoils your planning of retirement savings. It is essential to organize your finances for every milestone leading up to retirement. You should ensure that your returns remain strong. Keep a separate emergency fund account so that in times of any emergency you need not touch the retirement savings.
Apart from the above-mentioned mistakes, there are a few more which should be avoided to have a good retirement saving. Lack of diversification is a common mistake. But it is very important to reduce risks while making investments by diversifying your funds. Always allocate your funds for investments among different assets. This will be helpful in saving your funds from any loss. Also, you should avoid the mistake of undervaluing your retirement needs because inflation and lifespan are the factors which should be taken into account.
Wrapping up.
Retirement planning involves the most important thing, that is your savings. It is your responsibility to estimate retirement expenses. You should also assess the time you have in your hands for saving sufficient money for your retirement. You are required to evaluate your risk tolerance and tax liabilities of your investments. Life expectancy has been increasing. If you
don’t invest for your retirement, you will be dependent on your children and family for financial support. So, you should increase your retirement investment whenever you receive any sudden income or if you get a salary hike. You should not use the funds you’ve reserved for retirement; otherwise, you will not receive the advantages of compounding.