Retirement is a biased word for us, isn’t it? Some get scared of this while others are eagerly waiting for retirement to come. Ever thought what makes it so scary to think about?
“The lack of planning”. Yes, you definitely need to plan your retirement as early as possible. The average retirement age worldwide is between 56–65. However, the new trend says “retire at 40”. There are people working hard to attain their retirement at 40 and enjoy rest of their lives pursuing what they love.
Similarly, you may have your personal retirement goals. These goals may sound like:
→ Buying your second home;
→ Planning a world tour;
→ Shifting to your dream place;
→ Pursuing your passion.
There are various situations that life takes us by. Each decade of our age is determined by some major shifts in life. For instance: In your 20’s, you may be paying off your student loan. While in your 30’s you may be planning your family.
These incidents sometimes take us away from thinking about retirement plans. Nevertheless, retirement is not something that should be ignored.
Have you ever thought about why is retirement planning so important? Why do some people focus so much about retirement and save bits since their 30’s? Let’s see why should you consider retirement planning at 30.
→ Planning early gives you an option to invest or save;
→ Saving or investing in small chunks is all fine at this age;
→ You may not be over-burdened with responsibilities;
→ If you go for large chunk savings, you will end up with more financial security;
→ Saving for retirement lets you enjoy your early life to the fullest;
→ You will have a secured retirement life;
→ It helps you to cherish each moment of your life stress-free before and after retirement.
Retirement planning is crucial for various reasons. Let’s have look at some of the important ones.
- Fluctuating economy: The economy we live in is uncertain. There are various retirement benefits that are being offered in developed economies. Whereas, the developing economies are still struggling to provide satisfactory benefits. In this scenario, protecting ourselves would be a smart step.
- High expenses: It is a known fact that the expenses in retirement get high-pitched than the income. One of the reason is lack of planning. With proper planning, we can put this fact on the other end.
- Uncertainty: Life is uncertain. You may not know when you will witness a major need for money. Whether it be after retirement or before. However, planning with an open mind would make the battle of uncertain situation easier.
What would it take to plan your retirement?
Until now you must be worried about what all you need to plan retirement. Don’t worry, I’ve got your back here. Let’s go through some wisdom now. Below are steps that would lead you to plan your retirement wisely.
Determine the corpus: The first step says, determine the corpus you think you will need. According to me, the easiest way to determine this amount is:
i. Calculate the years of service and let the expected life expectancy be 85 years;
ii. 85 (years) minus years of service = years after retirement;
iii. Determine annual expense;
iv. Annual expense plus the rate of inflation (consider the last year’s inflation rate, for e.g. 6%);
v. Total of (iv) divided by years after retirement.
You’ll reach an amount which will be called “total annual expenses post-retirement”. The next calculation is multiplying it with total expected years post-retirement. The figure you’ll reach is the total corpus you’ll need post-retirement. (consider adjusted inflation while calculating this).
You can use the present value formula in excel for the last step stated above.
Once you have the
corpus amount, you have a figure you will need all your years after retirement. It’s now time to calculate the monthly savings that you will need.
Divide the corpus by years left to retirement, considering the expected returns during the accumulation period.
The calculation may look a bit difficult at first. But, once you have a proper understanding of the terms, things will get much easier. Also, there are various retirement plan calculators available online. However, your situation and needs may vary from the online calculation system.
Live for Yourself. There is a lot that you can do after retirement. It depends on your passion and love for your hobbies. There is nothing wrong in taking up your passions after retirement no matter how crazy it sounds.
Proper planning would save a lot of your early life stress and will give you space to relish. Be smart, and plan your retirement wise.