An Outlook on the Art of Retirement Planning

An individual should ideally begin the process of retirement planning at an early stage in life, may taking small steps when time is on someone’s side. This will save a lot of worry when the time for retirement is closer. 

Moreover, if an individual takse advantage of compounding, small contributions will grow into a significant retirement corpus in a time-frame of 25-30 years.

However, in many cases, it may not be possible for everyone to start investing for retirement early in life. This may be due to family commitments or any other such reasons. For such individuals, there are ways to increase their post-retirement earning potential – such as postponing retirement by few years, getting a job to supplement one’s pension, and, to avail retirement advances such as reverse mortgage schemes, as the last resort, if one has their own house.

Since many working employees have benefits like Employee Provident Fund (EPF), Gratuity, Superannuation, among others, there is some comfort as regard to retirement planning, as such benefits work through automatic deduction from one’s salary. Additionally, there is a matching contribution from the employer, too.

A Step-by-Step Approach to Retirement Planning

  • Understand the current financial situation
  • Identify the future financial needs
  • Identify the amount one needs to contribute to fulfill the financial goals
  • Start saving and investment in right schemes
  • Monitor the retirement plan at regular intervals

While planning for the retirement, the following common expenses should be taken into account: Food and clothing, housing (rent, property tax, property maintenance and repairs, home insurance), utilities (gas, electricity, water, telephone and mobile, TV bills, among others), transport, insurance premium (medical, personal accident, motor), iIncome tax, liabilities (personal loans, vehicle loans, credit-card payments), recreation (travel, hobbies), etc.

A Few Sources of Post-Retirement Incomes: 

  • Savings and retirement proceeds from investments
  • Pension annuity from employer and/or insurer/mutual fund
  • Post-retirement job to supplement income. These could be in teaching, part-time consultancy, and so on 
  • Reverse mortgage
  • Regular income from investments in form of dividend and interest income

Pension Plans: Pension plans or annuities are typically bought to generate a regular income during your retired life. Annuities are typically in instalments; or in a lump-sum. 

The period through which an individual investing is called the accumulation phase. In return of the investment, one receives back a specific sum every year, every half year or every month, either for life or a fixed number of years.

This period when the individual, called annuitant receives the payments, is known as the distribution phase. Generally, an individual opts to get annuity payments (also known as un-commuted payments), upon retirement. 

An important aspect here is to make sure that the payments one receives will meet the income needs during retirement.

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