Keep reading to find out how to use the four stages of retirement planning to maintain your current lifestyle when you do retire.
What is Retirement Planning?
Retirement planning takes into consideration your current lifestyle expenses, life goals, and other aspects such as life expectancy rate so you can start saving for your golden years. Financial planning for your retirement involves developing strategies to ensure you save enough so you can live comfortably when you’re no longer earning a regular income.
It includes factors such as inflation rates, unexpected medical bills, financially dependent loved ones, and personal life goals. With this information on hand, you can explore different investment opportunities to grow your money. Retirement planning looks at your financial future and helps you invest early for building your savings.
Why You Need to Plan for Retirement?
Planning for your retirement ensures you start saving as soon as possible for your future. It details how you need to structure your financial affairs so can live an independent life while maintaining a lifestyle you’re accustomed to in your retirement years.
You need to plan for your retirement so you live your golden years stress-free without worrying too much about uncertainties such as living longer than you expected! Retirement financial planning will ensure you can pay your bills timeously, not sink into debts, save money for unexpected contingencies, and help you spend your money wisely.
What Are the Stages of Retirement Financial Planning?
Making your money work before and after you retire is the key outcome when implementing the four stages of retirement financial planning. They include accumulation of wealth, saving your funds, deciding whether to retire or continue working and finally, distribution of your retirement income.
Budgeting for each stage ensures you’re properly prepared financially for your post-retirement years.
First Stage – Accumulation (Age 30 – 50)
From the age of 30, you can start to accumulate wealth by setting aside fixed payments for various investment and retirement funds. Starting to save from as early as 30 years old gives you enough time to grow your money while saving it for your retirement.
Retirement planners recommend investing up to 10 to 20 percent of your monthly income into investments or plans in order to save enough for your later years. However, if you plan to retire early at the age of 55 years old, you’ll need to set aside 18 to 20 percent of your monthly income into a retirement plan.
Investment Options
Indian citizens can invest in a retirement investment plan when planning for their golden years. A number of retirement investment options are available and these include high-risk investment opportunities such as stocks and funds or assets and commodities.
Depending on your risk tolerance, you could opt for low-risk investment options such as insurance and savings plans or bonds. Mutual funds with Systematic Withdrawal Plan (SWP) are another investment option for this age group.
Retirement Funds
Retirement funds such as the Public Provident Fund (PPF) act as savings tools for Indians between the age of 18 and 65 years old. Pension plans and the National Pension Scheme are other retirement funds for small investors in this age group who want to start saving for post-retirement years.
Retirement Savings Plans
Retirement savings plans are specifically designed to guarantee returns and can include life cover if you take out insurance as well. Savings plans allow the policyholder to set aside money so that it may accumulate over a period of years before retirement. The plans are designed to ensure the policyholder receives a steady source of income when he does retire.
Second Stage – Preparation/ Savings (Age 50 – 60)
In the second stage of your retirement planning, you’re reviewing your financial portfolio and determining how to protect your existing savings. If you have achieved some of your biggest personal life goals, you can start investing more of your income into retirement funds.
Financial Planner
Hiring a financial planner during this stage will help you to explore different ways of protecting your savings while maintaining wealth accumulation. A financial planner will review your investments, and assess your current lifestyle expenses plus other factors such as tax obligations prior to your retirement years.
Taking into consideration all of these factors, a financial planner will calculate your post-retirement costs plus other expenses such as medical emergencies. They’ll also factor in the cost of living increases that may influence your retirement income requirements.
Assets
At this stage, a full review of all your assets needs to be done. If you have maxed out on retirement savings plans and you’re still earning a good income, you can invest in assets such as real estate or stocks as a way to beat the inflation rate. These assets will help you to grow your nest egg for your golden years.
Retirement Monthly Income Calculator
Using a retirement monthly income calculator will help you calculate what you’ll need to save in order to have enough to live independently when you retire. By inserting figures such as your current fixed and variable expenses, the calculator will give you an estimated retirement monthly income needed to keep you living your current lifestyle.
Third Stage – Retiring (Age 60 – 65)
In India, the retirement age is 60 to 65 years old. However, at this stage, you can decide if you’re going to retire or keep working.
Retiring vs Continue Working
When deciding between retiring vs. continuing working, one main factor that determines whether you can retire or not is your retirement corpus. If you have accumulated enough funds to stop working by the time you’re 60 years old, you can sit back and enjoy your golden years. However, if you think you can grow your retirement corpus by staying in your job for a few more years, continue working.
Choosing to continue working beyond 60 allows you to accumulate additional funds for a comfortable, stress-free retirement. By not touching your savings and investments for another five years, you’ll reap the benefits of increased wealth post-retirement.
Fourth Stage – Distribution (Age 65 and above)
When you retire at 65 years old and your regular income stops, you can now rely on your accumulated savings to support you in your golden years.
Pension
Depending on the types of retirement plans you invested in, lump sum or monthly income payments will be paid out as part of your pension. These income sources will ensure you can meet your living expenses and other costs such as medical bills if you have planned ahead for these eventualities.
Life Insurance
Investing in life insurance ensures the policyholder’s loved ones are financially secure in the event of their passing. Death benefits are paid out to the dependents, protecting them from financial burdens and uncertainties.
Non-Financial Factors to Take Note Of
While retirement planning focuses on the financial aspects of your golden years, non-financial factors shouldn’t be ignored.
Psychological and Emotional Preparation
Preparing yourself psychologically for retirement allows you to be emotionally content during your golden years. You’ll be spending more time at home and won’t be as busy as you used to be in your working years. While this may sound attractive, ensuring you don’t get bored is essential for overall well-being.
Planning for your retirement should include making a list of hobbies and activities you would like to participate in to keep you mentally and emotionally fulfilled. It’s equally important to remain physically active for psychological wellness in your aging years.
Planning for Your Family and Dependents
Retiring from working means you’ll be living at home with your family 24/7! Preparing yourself and your family for this is important to ensure everyone is comfortable and happy. Factoring in dependents such as disabled children is essential if you want to cover their expenses while meeting your current lifestyle when you retire.
