retirement planning

The essence of retirement planning

Retirement planning is an essential element of any financial plan. Retirement planning is a comprehensive process for determining how much money you will need when you retire. Retirement planning also helps you identify the best ways to save for retirement given your financial situation.

If you are like most people, you probably think retirement planning is only important when you retire. However, proper planning requires a much longer period of time -- from the day you start working until well beyond your actual retirement date. In fact, it's never too early to start planning for your retirement.

At age 65, the average man will live almost 19 more years, while the average woman will live another 22 years. We will probably spend 25 per cent to 30 per cent of your life in retirement, requiring vast sums of money to support yourself.

In India, many of us put off retirement planning because we are too busy trying to meet our immediate financial needs to think about what will happen 20 or 30 years hence.

It's easy to understand why meeting your monthly bills seem more important, especially if your retirement is still far off. But here's something to think about: As you move through your life, you will experience many life events that will affect your future financial security -- such as getting married, starting a family, purchasing a home, and sending your children to college. Each of these events will affect your ability to plan for your future financial security. If you develop a flexible long-term plan, you will can overcome these obstacles and ensure financial independence in your retirement years.

Identify personal goals

When defining your retirement goals, your description should be specific and measurable. For example, a goal to "retire at age 60 with resources to sustain current living expenses of Rs 1,00,000 per year" is a goal, which is both specific and measurable.

If you have several goals, you should prioritize them so that your resources will be allocated to the most important goal first. By assigning a priority to each goal, you also ensure that secondary goals won't take precedence over primary goals.

In this process, it is important to understand your needs. To determine the appropriate percentage for your retirement, you need to determine if any of your current expenses will change when you retire. Will your travel and leisure expenditures increase? Will your job-related expenses for commuting and clothing change? Will you have to pay more for medical costs? It's generally accepted that many of your routine annual expenses will change during your retirement years. The trick is determining whether those expenses will increase or decrease, and by how much.

Both living expenses and inflation are important in understanding your retirement needs because you are planning for a period of time, not a point in time.

Review progress

Once you develop your plan, the process is dynamic. As you revise and prioritize your projected goals, you may see changes in your estimated income needs, projected resources, and other assumptions. It's a good idea to review your action plan regularly and if necessary, make changes to make sure it still meets your needs.

Finally, a successful retirement plan requires your active involvement and long-term commitment