The first and foremost reason to compel you to retirement planning is that the average life expectancy is rising continuously and that the best days of work will last. Best retirement plans ensure that after retirement, you don’t have to worry about your expenses. They ensure that you do not have to get back to work and curb your spending. They help you to live life at the fullest, even after retirement.
The primary step to retirement planning is to calculate how much money you will need when you retire. This is particularly important as this is the basis, on which, you can choose from the best retirement plans. Here is a step by step guide on how to calculate the amount you need for retirement.
• Calculate the expected household expenses when you retire
Expenses do not stop, no matter at what step of your profession you are. The first step to retirement planning is to calculate your regular expenditure. Divide your expenses into two. Expenditures such as food, grocery, medicine, clothing, etc. will stay even when you retire, but expenses such as work travel cost, professional attire, education loan, personal loan, etc. might not be there. Taking these points into consideration, calculate the expected expenses.
• Calculate expected income after retirement
Include income from all sources that you expect to earn once you retire. This income might be coming from the properties you own, income from a pension scheme, pension under other sources such as EPS etc.
• Calculate the additional income needed
This step is relatively easy. You just need to deduct the expected income from the expected expenditure. The answer will help you to analyse the surplus income you need after retirement and should form your basis of retirement planning.
• Factor in the future value of additional income required
You need to factor in the future value because the additional requirement might seem low today, but over the years it is bound to grow due to inflation. Take expert advice if needed at this step. Usually, 6% (the long term average) is used for accurate forecasting.
• Decide on the retirement corpus
This step comes with a series of sub-steps. First, find by how much your current investment corpus will grow to at the time of your retirement. Next, find out how much retirement corpus you need at the age of your retirement by taking into numerous factors such as life expectancy, asset values, and return expectations, and so on. Doing this will help you to arrive at the additional corpus required for a smooth retirement.
• Find the best retirement plan
After following each and every step carefully, you will arrive at the corpus you need to maintain at the start of your retirement. Find a retirement plan that proves helpful to you in these efforts. A retirement plan should be flexible, have proper returns and should provide additional riders to suit the individual’s exact requirements.
• Try out the retirement calculator
Many financial entities provide a tool called the retirement planning calculator which operates on a series of algorithms, rules and predefined sets to provide you with a fairly accurate overview of your needs when you retire. The calculator takes into different factors such as saving balance, investment, age, and income. It assesses your financial position based on these parameters and helps to forecast future values. The tool is easy, simple to use and available on the internet.
The earlier one starts to plan for retirement, the better. The reason is that collecting and saving funds for ideal retirement may take many years. Starting from a young age ensures that you have enough funds to spend your retirement worry free and the bottom line is, it is never too early to start for retirement.
You need to comprehend the importance of retirement planning. So, what are you waiting for? Go on, contact your bank, your insurance company or your financial advisor, seek out retirement plans and get ready to tick off all the things in your bucket list post-retirement.