Post-retirement should be a time of relaxation and peace with no worry about finances. So, to ensure financial independence in old age, you must have retirement planning on top of your priority list. But you might wonder how much you would need in your post-retirement years. The answer to this question depends on several factors.
Let’s find out what factors help determine your retirement needs and how you can calculate your savings for old age. Also, read ahead and learn about the different stages of retirement planning.
What is Retirement Planning?
Retirement planning is a process of determining the income goals post-retirement and the ways to achieve those goals. It includes identification of income sources, managing expenses and savings, making prudent investments and building an adequate retirement corpus. Retirement planning is a lifelong process. Also, it is never too late to plan for retirement, but it is better if you start planning early.
How Much Money Do We Need After Retirement?
Retirement planning is not as simple a task as it is considered to be. It requires thoughtful and well-calculated investment after a proper analysis of retirement needs and current savings. Post-retirement planning can be done by calculating your retirement needs and determining investments through a comprehensive outlook on the following factors:
- Calculate your monthly expenses
The regular payment received from your retirement planning should be enough to meet your monthly expenses. To calculate your monthly expenses after retirement, classify your expenses into permanent and temporary. Permanent expenses may be your housing, food, clothing, health and utility expenses. Temporary expenses may include expenses related to your loan, work, education, etc., which are usually paid off after a defined period.
- Factor in all sources of income after retirement
While calculating how much you need post-retirement, you must include all the possible sources of income after your retirement. This may include your pension payouts, NPS or EPF withdrawal, house property income, investment gains, etc.
- Consider the time of retirement
Usually, individuals retire after the age of 60. But if you plan to retire earlier, you will need a sufficient corpus for retirement to meet the financial needs for a significant amount of time after your retirement. Thus, retirement planning should be done according to the age of retirement.
- Consider the inflation rates
Considering the inflation rate is one of the essential aspects while planning for retirement. Inflation leads to a rise in the cost of living, which may make your pension plan insufficient to meet your daily expenses. So, inflation adjustment in your retirement savings may help you have adequate income without compromising your needs.
- Consider your health costs
With increasing age, health complications also rise. The high medical costs may hurt your monthly pension in case of an eventuality. So, you must ensure your retirement corpus covers health costs without hampering your standard of living post-retirement.
- Include recreation expenses
The post-retirement is the golden period of life when you want to fulfil your old dreams or pursue a hobby. You may want to travel the world without worrying about rushing to work. So, retirement planning should factor in the costs of leisure activities too.
How Much Should You Have Saved for Retirement By Age?
It is never too late for retirement planning which can be started at any stage of life. This is how you can save for post-retirement at different stages of life:
- Young adulthood (21-35 years old)
Young adulthood is the time when you start earning. But this is also the age when you want to fulfil your dreams and live life to the fullest. Due to this, you may not save enough. But starting with retirement planning at this young age lets your investments mature. So, even if you are saving little at this age, the principle of compound interest may make your corpus grow over time.
- Early midlife (36-50 years of age)
Early midlife is a period when you have responsibilities to fulfil. You have credit card debt, mortgages, loans, and insurance premiums which may not allow you to save for retirement. But you must prioritise retirement planning at this stage if you haven’t started it in young adulthood.
There is ample time to build a retirement corpus along with interest earnings. You should also consider buying a life insurance plan to safeguard the future of your loved ones in case anything unfortunate happens to you.
- Later midlife (50-65 years of age)
Retirement planning at this stage is a late investment avenue. But in later midlife, you might have paid off most of your debts, such as loans, mortgages, etc. Due to this, you will be left with more disposable income that can help build a sufficient retirement corpus. Also, growth in income at this age can offset wasted time.
Thus, retirement planning ensures a regular income in old age, making you financially independent. But there is no specific method to calculate the exact retirement needs and savings. So, every individual should analyse their post-retirement income needs and invest accordingly.
You can also consider some common factors while investing in a retirement corpus, which may help you plan for old age efficiently. Also, not all retirement and pension plans generate the same returns.
Understanding your needs, Tata AIA Life Insurance offers a range of retirement plans that can be tailored to suit your old age requirements. By buying these plans, you can ensure your retirement corpus remains intact. So, hurry and start investing and purchasing the right plans for a worry-free post-retirement period and retire like a boss.