Retirement planning can be a long and arduous process, one that needs adjustments and modifications at every step of the way. This is why experts suggest that one should keep in mind to follow a different strategy at every stage of life. Knowing how to create a retirement plan that is customised to your needs is only one part of your journey. The other part is to alter this plan as circumstances change with age.
Read on to know more about types of retirement accounts, calculating retirement income, the stages of retirement, and tips for calculating how much you need to retire at different stages in life.
What is a retirement account?
A retirement account is a savings plan specifically designed for retirement savings. There are different types of retirement accounts, such as guaranteed1 income plans, life annuity plans, pension plans, provident fund accounts, etc. You can select them as per your needs and requirements.
What is a good retirement income?
It is hard to pick a precise sum of money as your retirement income goal. However, financial experts suggest that your retirement income should be 70% to 90% of your final pre-retirement salary. So, for instance, if your last drawn salary before you retire is ₹1,00,000, your retirement income should be at least ₹70,000 or more.
What are the stages of retirement planning?
The stages of retirement planning can be categorised as per your age. In order to simplify your retirement planning, you can distribute the timeline as per this:
- Your 20s
- Your 30s
- Your 40s
- Your 50s
Here’s how you can plan for each of these:
1. In your 20s
Your 20s is a time when you have just begun your career and have minimum responsibilities. It helps to use this time to start planning for your future. Although not many people like to think about how to create a retirement plan so early in their lives, beginning to save at a young age can have many benefits.
Firstly, it offers you an opportunity to benefit from the power of compounding. Secondly, with little to no responsibilities, you can adopt aggressive investment strategies. Even if you face losses, you will have plenty of time to make up for it later. Use this time to find an appropriate retirement account and start investing as soon as you can.
2. In your 30s
Your 30s can be a time when responsibilities start to add up. Most people are married and have children during this life stage. So, the onus of their expenditure and future savings also falls on your shoulders. Moreover, you may take a loan to buy a car or another possession in your 30s.
All of this can interfere with your retirement goals. It helps to create a budget for all your monthly expenses, such as electricity, school fees, loan repayments, retirement contributions, insurance premiums, etc. This ensures that your savings stay intact and life’s other requirements do not hamper the growth of your retirement corpus.
3. In your 40s
Your 40s can be a more stable time in your life as compared to the stages before. You are at a better place in your career with a considerably high steady salary. The retirement savings that you would have started earlier in your life should have arrived at a decent figure.
However, as your income and savings increase, so does your standard of living. Hence, this should not be a time to let go of your final goal. Instead, you should aim to add a portion of every salary hike, bonus, or increment towards your retirement corpus. This will ensure that your savings grow as you grow in life and your retirement fund is able to ride out inflation too.
If you have not started saving for retirement, your 40s is a good time to start, as you may still have 20 odd years to prepare for your golden years. It would be difficult to amass adequate funds later.
4. In your 50s
This is a stage where you can be considered to be on the brink of your retirement. Since most people retire in their 60s, your 50s is a crucial time to assess your savings and investment strategies.
It may be advised to switch to less-risk investments, as it may be hard to deal with an unexpected loss this close to retirement. However, you may use this time to increase your retirement account contributions, as your 50s is when your responsibilities are reduced. Your children are grown up by now, and their financial dependency on you decreases. This leaves you with additional money that can be used to invest or save towards your retirement goal.
However, you should keep aside a fund or have adequate health insurance to cover medical expenses as your health may start to suffer.
How Can Life Insurance Help You Prepare for Retirement?
Life insurance is an important part of your life, no matter at what stage you purchase it. However, when you retire, life insurance can serve a unique set of needs that you have during your retirement years. This can be regular income, medical emergencies, future investments and so on.
Here are some ways that life insurance can help you after you retire:
- Monthly or Regular Income: With a life insurance policy that includes a savings or investment component, you can save adequate funds and enjoy regular income during your golden years. In the case of an investment cum insurance plan, you can withdraw money from the funds as and when you need additional monthly income for various needs.
- Settling Debts: If you have been unable to pay off any accumulated debts or loans by the time you retire, your life insurance proceeds can help you pay off these debts so that you do not have to worry about them during your retirement. However, it is advisable to make provisions for these additional expenses when you buy the life insurance plan so that your retirement expenses are not affected.
- Support your Family: The main purpose of life insurance is to support your family financially in your absence. Before you retire, get a life insurance policy so that in the event of a fatal or critical illness, your death should not leave your family without a financial safety net. Moreover, a range of life insurance plans allow you to choose more coverage to ensure that your family will be financially protected for several years.
- Leave a Legacy: You can choose to donate to charity, set up a trust fund or leave an inheritance for your children with a life insurance plan. If you plan well and purchase a suitable life insurance plan early, you can ensure a comfortable life for your family and also contribute to the society.
- Secure Retirement Savings: All the money you save for your retirement may or may not suffice if some additional emergency expenses happen to come your way. Medical expenses can take away a chunk of your retirement savings and deplete the resources. However, with a well-planned life insurance policy, you can create a financial back-up that will secure your savings and enable you to have a comfortable life.
Always get in touch with a financial advisor to determine which life insurance policy is right for you based on your unique financial situation and retirement goals.
Retirement planning is one of the essential tasks that you would take up in your life. The right retirement strategy can guarantee1 you a life of comfort, security, and dignity. Therefore, you must start early and revisit your plan at every milestone in your life to confirm that you are on the right track. This will help you in picking out the best investment opportunities and eliminate factors that are slowing down your progress.