Investors all over have mixed feelings when it comes to retirement planning. Some might shrug it off saying that it is a later goal in life, while some might have panic attacks at the mere thought of retiring without a fixed stream of income. There are different types of investment that may help you achieve the right retirement corpus for your retirement. In this article, we will focus on the right age for retirement planning and how an investor can adopt the right retirement plan for themselves.
How important is retirement planning?
Retirement is as important milestone in an individual’s life, just like other financial goals such as your education, having a family, raising children and looking out for their expenses, etc. Another reason why it is important to create a significant corpus for your retirement would be that the life expectancy of an individual has substantially increased over time owing to advancement in technology and medical sciences and improved hygiene and health standards. While our ancestors were expected to live around for 77 years on average around 1950s, this life expectancy substantially spurred to 87 years in 2010. As a result, one needs to save extra for this extra 10 years of life, which is why it is more than important than ever to save for your retirement.
What is the right age for retirement planning?
Ideally, one should start saving for their future and retirement from the day they start earning. This is because when you are young, you do not have much financial commitments. And, as you grow, these commitments and responsibilities are likely to increase with time. If you wish to put a number to it, considering that you are looking forward to retiring in your 60s, your 30s might be the right age for retirement planning – giving you 30 years for saving and investing for retirement. Having said that, if you can, it might be a good idea to begin early – probably in your 20s. This will help you to decrease the pressure in the later stages of your life as your investments are likely to grow bigger with increase in investment horizon, thanks to the power of compounding.
How to plan for your retirement?
If you wish to save for the golden era of your life, here are a few steps that can help you plan and save for your retirement:
- Decide when you wish to retire – The age at which you wish to retire will affect the retirement amount you’d need to save. Remember, the longer your investment horizon, the smaller would be the monthly investment amount due to the power of compounding.
- Do not forget to factor in your current lifestyle – It might be a good idea to consider your current lifestyle while planning your retirement so that you do not have to compromise on your living standards even after retirement.
- Be prepared for any emergency – It is a good idea to prepare for the worst as emergencies do not come knocking in life. Also, as you grow old, you are likely to spend a fortune on your health and ailments.
- Calculate net retirement costs – Estimate your net average cost of living on a yearly basis. This should comprise of your rent, mortgage, travel expenses, personal expenses, food, etc. Multiply this cost with the number of retired years. Do not forget to add one-off overheads such as your child’s higher education or marriage, etc. and factor this with the appropriate rate of inflation.