After entering the job market, young professionals look forward to spending their earnings on things that they always dreamed of owning but never did so because they did not have access to their income. Now that they have their income, they don’t need to look for their parent’s permission. However, instead of spending all their income, it will be prudent for people especially young professionals to set aside a part of their income for savings. These savings can be used for a retirement fund. The planning for the said fund is referred to as retirement planning.
What do you mean by retirement planning?
Planning for retirement is the process in which you prepare a plan charting out your monthly expenditures so that you have enough savings in your account in the future. Apart from listing out monthly expenses, you also make sure to include how much you will be investing in an investment scheme every month. This action has twin benefits. Firstly, it makes you a disciplined spender. Secondly, this also helps in accumulating enough wealth in the portfolio, thereby ensuring that after retirement, your expenses can be carried out smoothly. If you have opted for retirement planning, you are required to take steps such as setting retirement goals and determining the monthly sum that will be needed for investing.
However, it is important to make note of one important fact about retirement plans. The final goal can be different for different investors. As these plans are designed after carefully analyzing specific ideas of investors on how they want to spend their retired life. Therefore, it is of the utmost importance to have a financial plan which is designed specifically to suit the specific retirement needs of an individual investor.
What are the benefits of retirement planning?
Listed below are some of the benefits of retirement planning:
- They will help in creating a financial backup for emergencies:
Unlike when you are employed, there is no continuous flow of cash when you are no longer working. The unpredictability of life after retirement can be frightening. Being prepared very early for such situations is one of the crucial benefits of retirement planning. Once you have secured a sizeable corpus for your retirement, you can ensure that both you and your partner remain protected during financial emergencies. Retirement planning also enables you to lead the golden years of your life with dignity. In case of emergencies, you can depend on savings to meet life demands. Starting to invest early, for example, 30 or 35 years before retirement can be helpful as your corpus grows by great lengths. A duration of 35 to 40 years is good enough to allow your investment portfolio to grow by at least 4 or 5 times.
- You can enjoy returns on investment:
Investing in schemes such as mutual funds can also be considered a wise move. Mutual funds investment comes with higher liquidity and is known for allowing the investor to earn a steady income. Investing can help you in saving and growing your money over time. Depending on your risk profile, you are required to decide which investment tool is more suitable. Right planning at the right time can result in satisfactory returns from mutual funds.
- You may end up saving costs:
You can reduce the cost of retirement planning in various ways. If you were to start planning very early, like say, in your 20s, you end up enjoying various benefits. As it is a long-term investment plan, you need to give the scheme the required time so that it can be more fruitful.
- It will serve as a source of income for private-sector employees who don’t have a pension provision:
In case you were a private sector employee and there is no provision for pension, you need to consider retirement planning as a source of income. You have the freedom to choose the investment vehicles that will help you to save your earnings on your terms for retirement. When the time for your retirement comes, the revenue generated from retirement planning schemes will replace income. This should help you live comfortably.
So, the answer to the question “will retirement planning be helpful for wealth accumulation for retirement?” is yes, it will be very helpful. In case you feel like you’re left behind in your savings, there are always ways for you to catch up and save a bit more. Don’t be afraid to ask for help because a financial advisor can help you review your current savings.