Thinking How Much You Should Save for Retirement and How?

Simple Steps for Retirement Planning

Retirement, a once in a lifetime moment for a person, from where he can began to reap the fruits of his work life. If a person wants to enjoy his/her twilight years, then they must save for their retirement. By saving for it, we not only enjoy but also have financial freedom in the down turning years.

As we know, that the average life expectancy in 1947 was just 32 years and now it is around 68 years. Over the next 20-25 years, it might increase to 90 years. But with longer life expectancy the productivity is not growing.

Earlier the workforce was joined by the youth at the age of 20 years, but with the increase in average life expectancy and with the inclination toward higher studies, the child is joining the workforce at an age beyond 22-24 years. So due to this, we can say that even if the expectancy of life is increasing, there is still a decrease in the working life of the people.

Therefore the working life is short, and the retirement life is long, and the plans regarding retirement are the last thing that revolves in the mind of a person. Due to this a lot of questions and queries also arise like

  • Exactly when and how should a person start planning for his/her retirement?
  • Is the person prepared to not run out of money when we have its need the most?
  • How will a person save money for his/her retirement?
The question isn't at what age I want to retire, it's at what income

Most people delay their plans of saving their money for retirement. But it is a wise choice to start saving early and at a slow pace because the person who starts saving early has more time to let his money grow. Also, by saving soon, we can earn little more through small investments.

How can I save the most for retirement?
What is enough to retire?

With the help of the following example, you will better understand the benefit of early savings and early investments – suppose you are 25 at present and we want to collect an amount of Rs 1,10,21,662 till the age of 60. 

We will have to invest a monthly amount of Rs 2000 by assuming that the return per annum is 12 per cent. In case you had started investing and saving late, then you will have to offer more money in the accomplishment of your retirement amount. If you are 35 and then start investing, you will have to invest Rs 6536 every month, given the return per annum remains the same.

With the potential of compounding the person who started saving earlier has a higher collection of money for retirement. The compounding has more and a magical effect over a longer duration of time.

Retirement planning has two stages:-

  • Accumulation stage- It is that stage before retirement where the savings and investments are made to accumulate money for retirement.
  • Distribution Stage- In this stage, there is an inflow of income.

How Much Should You Save Towards Retirement?

Before planning for retirement, a person must know how much money they will need to live peacefully in the departure. While making retirement planning consider the following points-

  • See whether you have an adequate pension or not.
  • If you have adequate pension amount, then you must know how much money is required in the retirement after assessing medical expenses.
  • Know the amount that can be earned through interest and dividends.

Where Should a Retiree put their Money?

Once you have an idea of the money you require for the peaceful survival of your retirement, you can start planning. Few options for investment are-

Systematic Investment Plan

  • Invest in a SIP at an early stage if your life.
  • With an increase in your income start investing more in a SIP
  • Don’t use the retirement money for meeting your expenses.
  • Keep on investing in a SIP until you are retired.

Other Retirement options are-

 Public Provident Fund

It is a saving instrument which was introduced with the main aim of teaching small saving habits in the youth. It can also be referred to as a tax-saving instrument as it gives a reasonable return on investments along with the tax benefit.

Employee Provident Fund

This scheme helps to provide benefit to the salaried employees after retirement as in this employee and employer make an equal contribution. 

National Pension Scheme

It is a compulsory scheme which is managed by the Government under which the employee gives a specific portion of his salary in the provident fund and enjoys pension on getting retired. 

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