Retirement can be a happy, restful and fulfilling time or a time of bad financial health, based on what you make of it during your working days. While retirement may start as late as 60 or 65, it is necessary to begin retirement planning as early as in your 20s and 30s.
Saving your monthly salary in a bank account might be a well-known step to everyone, but doing that alone almost never ensures financial security after retirement. From pension plans to insurance policies, here are some necessary things you must do before you plan to throw in the towel.
- Invest Early And Take Calculated Risks –
There is a reason why pension plans and retirement funds are as risk-free as they are (as long as you choose a good company to invest in). As you get older, you will have accumulated a lot of financial responsibilities, meaning your income is better directed towards monthly expenditure or policies such as health and life insurance. However, when you are younger, you have no hinges on what you can do. This is the perfect time to take risks and expand your income as much as you can. Equities and mutual funds are very favorable in this regard.
- Buy As Much Insurance As You Can Afford-
A great many people undermine the importance of life insurance. Before you get to the point of buying pension plans and the like, you need to purchase insurance policies as soon as you are in a family. Health insurance and life insurance are especially important. As people can’t see the revenue coming back from the premium paid, they think insurance is unimportant. But the loss of life or disease come without knocking, and when they do, it is necessary to have a policy back you up.
- Know The Relation Between Savings And Inflation-
So you’ve been planning retirement for a while now and you’ve set up a savings account, planning to live off the interest. You have allocated, say, Rs 40,000 per month as expenditure during retirement years. Any financial advisor will be able to tell you why you are grossly wrong in doing retirement planning this way- one thing you are missing out in calculations is inflation. Due to inflation, the cost of living during your retirement will be way more than it is today, which makes your expenditure today not a very good projection for the future. This is why it has always been stressed that simply opening a savings account is never enough and you will inevitably need plans such as pension plans and other methods of retirement planning.
- Buy A Pension Plan-
In our discussion of retirement planning, we’ve time and again mentioned pension plans. So, what exactly is a pension plan and when should I buy it?
A pension plan is nothing more than an advanced version of a savings account. In this case however, you will have to give up the money to the policy seller for the whole term of the plan, but in the end, you will get returns at way higher return rates as compared to living off interest.
Another important aspect of retirement planning via such funds is when the right time to purchase such policies is. Actually, in most cases, there will be two or more different types of policies you can invest in. It is always better to invest as early as in your 30s, but if you haven’t had a plan before, there are policies that let you invest later in your age.
- Clear Your Debts As Early As Possible-
Education loans, home loans, vehicle loans etc. all may be left pending or can be cleared as early as possible. It is wise to do retirement planning in such a way that all these debts are clear while you are on a payroll than otherwise. These days, there are policies that pay to clear your debts directly.
Last but not the least, enjoy your retirement. You’ve done the hard work and made good decisions towards retirement planning. Now, it is time to sit back, enjoy the silence, and smell the roses.