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Aditya Birla Sun Life AMC Limited

Aditya Birla Sun Life AMC Limited

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    Aditya Birla Sun Life AMC Limited

    Retirement Planning

    Jul 15, 2024
    5 min
    4 Rating

    Making a retirement plan begins with understanding your tolerance for risk and long-term financial goals and then working towards those goals. One can begin the planning process at any time during their working years, but it's better to start early. The process of having a retirement plan begins with recognising your income sources, calculating your expenses, creating a savings plan, and managing all your estimates.

    As such, you can comprehend further what your retirement plan can involve, how it works, and how much you need to save to retire. Discover more information about the same and explore all about what is retirement planning and what it consists of.

    What is Retirement Planning?

    A retirement planning refers to planning for a good future life so that you can meet your financial goals. Retirement planning consists of setting retirement goals and estimating the sum of money you will require, and investing to further grow your retirement corpus. Retirement planning considers some non-financial aspects, such as where you live and how you want to spend your time. But it is more than just money.

    Your contribution towards your retirement savings may be modest in your early working life, but the investment growth will be rewarding after many decades. You can also set specific asset or income targets when you are in the middle of your career and then work towards achieving them. Once you reach retirement age, you will enter your distribution phase instead of accumulating assets. You stop paying for your retirement accounts and start collecting the fruit of your savings.

    How Much Money Do You Need to Retire?

    To understand what is retirement planning, you must have an idea of how much money you need to settle in your old age. But the amount of money needed by every person is personalised. For instance, your retirement money can be 30X times your current expense every month. If you spend Rs. 80,000 monthly or Rs. 9,60,000 yearly, then you can retire comfortably with Rs. 2.8 crore, which is 30X of your yearly expense.

    At the same time, one cannot ignore all the assumptions and variables that go into planning for your retirement. Even if you retire with crores of savings, you still need to consider variables such as the expected return post-retirement, the number of years one lives in their retired life, inflation during retirement, post-retirement expense estimates, life expectancy, and so on.

    Many things can change economically between now and the future, such as the inflation rate, medical bills, your children’s higher education or weddings. These are some of the things that a retirement plan does not account for, but they may change how much money you need.

    Steps to Creating a Retirement Plan

    There are certain steps that everyone must apply for their retirement planning, no matter which point of life you are in.

    Step 1: Come Up with a Plan

    Planning is a crucial aspect of your retirement, and it includes determining when you want to start saving. You must also consider how much you want to save since that is derived from your expenses and other variables.

    Step 2: Determine How Much You Will Set Aside Every Month

    You can use automatic deductions to ensure that a fixed amount is also transferred to your retirement account. That way, you won’t ever have to guess when or whether you should save for a specific month; it also reduces the chances of you forgetting and helps you keep track of your savings.

    Step 3: Pick the Right Instrument

    You can invest in a mutual fund or something similar. ELSS Mutual Funds are also an option since they help save taxes, but you can also go with a traditional individual retirement account.

    Step 4: Making Adjustments

    Check on your investments with time and make adjustments if required. It is necessary for any special event, such as getting married or having a baby.

    Stages of Retirement Planning

    Successful planning for your retirement is necessary, and below are some guidelines that can help you at different stages in life.

    Adulthood Between Ages 21-35

    At this point in life, one may not have a lot of money to invest, but it is a great time for letting investments mature. It is called compounding, and compound interest allows you to earn more interest over time. If you put aside Rs. 10,000 every time ever since you are 25, then might become three times more until you reach 45. And this is all due to compounding.

    Early Midlife Between Ages 36-50

    Early midlife comes with its financial strains, including student loans, mortgages, credit card debt, and insurance premiums. Once you understand what is retirement planning, you must continue saving at this stage. You will be making more money while having the time to invest and get interest in your best years for aggressive saving.
    You should continue taking advantage of any employer-sponsored plans while not neglecting any life insurance. Ensure that your family can live financially without having to use your retirement savings if something was to happen to you.

    Later Midlife, Between Ages 50-65

    Your investment accounts should become more conservative as you get closer to your retirement. You have some advantages in this age group since you will get a better income than ever, and you can still contribute to your retirement account. You can benefit from catch-up contributions during retirement planning.

    Final Thoughts!

    Planning for your retirement is more than just knowing how much you need to save and how much money you will need. You must also consider some other aspects, such as your estate plan, tax efficiency, medical insurance, and more. Overall, retirement looks different for everybody, and it is full of variables. So, even if you are saving for your old age, you must keep aside extra money since you may have to pay for something unexpected like a medical bill. Ultimately, you can say goodbye to the workforce at peace, knowing that you have a strong plan for your retirement and that you have enough investments to take yourself to the last moment.

    The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, affiliates or representatives (“entities & their affiliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision.

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.