Why do I need to plan for retirement?
Extending your retirement years
With the increase in life expectancy in India, planning for a longer retirement becomes increasingly important. Life expectancy figures indicate how long a person will live on average. In India, the average life expectancy of a 60-year-old is 18.02 2 years. This means that the average life expectancy of an Indian is 78 years. Therefore, you need to start planning well in advance to maintain your lifestyle and meet other expenses for such a long period of time.
Medical expenses
As you age, the biggest worry is the unforeseen medical expenses. Unless you plan well in advance, the rising medical expenses can be difficult to manage.
Achieving financial independence in retirement
You want to live the life you want in retirement. However, more than 65%^^ of people over 60 years old depend on others for their daily expenses. This shows how important it is to plan for retirement and ensure financial independence.
Benefits of retirement plans:
Benefit from the power of compound interest: The earlier you invest in a retirement plan, the longer your money will have to grow. In addition, over time, the interest earned is reinvested to generate greater returns, which provides a larger sum for your retirement
Safety net for unexpected events: Retirement plans ensure that you are financially prepared in the event of an emergency. They also provide financial support if you develop a major illness or become permanently disabled due to an accident
How much do I need to save for retirement?
After retirement, your regular income will stop. However, even during retirement, you will want to maintain your current lifestyle and be able to support your family. Also, medical expenses may increase. Therefore, it is important to calculate your financial needs after retirement so that you can prepare ahead of time. It is difficult to determine the exact amount you will need after retirement, however, here are some factors that you can consider to arrive at that amount:
Your daily expenses – This will give you an idea of how much money you will need to maintain your current lifestyle after retirement
Events and milestones during retirement – There may also be financial responsibilities during retirement, such as paying for your children’s higher education or wedding expenses, etc. It is important to factor these expenses in when planning for retirement
Dreams after retirement – There may be dreams you want to fulfill after retirement, such as traveling, starting a business, etc. These dreams require a lot of money, therefore, it is necessary to factor these dreams in when calculating the amount you will need during retirement
Unforeseen expenses – When planning for retirement, you should set aside some money to cover any uncertainties, such as medical expenses or any financial emergencies
Inflation – This causes the cost of goods and services to increase, which requires you to pay extra in later periods to consume the same goods and services. For example, if your current expenses at age 45 are ₹ 6 lakh per year, to maintain the same lifestyle after retirement, assuming an annual inflation rate of 6%, you will need ₹ 14.38 lakh per year at age 60. Therefore, it is important to account for inflation when calculating the amount you will need for retirement.
You can also use our Retirement Planning Calculator to calculate the amount you will need to save for retirement.
In summary, pension plans not only help you accumulate the necessary living funds for retirement, but also provide you with financial independence, tax advantages and long-term financial stability. They are an important tool to protect your future. The earlier you start planning for your pension, the more fulfilling and worry-free your retirement life will be.