Why is Financial Planning Important for Retirement?
Retirement is a much-celebrated milestone in an individual’s life, as it marks the end of an era. However, as much as you may be looking forward to this much-needed break after decades of working, you do have to keep in mind that your regular paychecks will also stop post-retirement.
Without having your monthly salary and yearly increments to count on, you and your family can find yourself in a lurch if you do not plan your finances.
This article will help you understand the importance of planning your finances for retirement and how plans like the insurance annuity pension plan can help you save.
Importance of financial planning for retirement
With the rising cost of living, life post-retirement cannot be financially secure unless you plan your finances well to cater to your needs. Listed below are a few reasons that will highlight the importance of financial planning for retired life.
- Inflation: For the past decade, the rate of inflation has varied from 3% to 11% per annum. Simply put, an item that costs ₹100 today will cost you about ₹200 in ten years. While this may not seem like a big jump to you right now, imagine having to pay almost double for your necessities without the support of your monthly salary.
Financial planning allows you to factor in the inflation rate and ensure that your investment and saving corpus is abundant enough to support you in your golden years, despite the rise in living costs.
- Medical expenses: The average life expectancy of an Indian has increased by almost ten years compared to the previous generations. It has increased to 69 in 2019 from 59 in 1993. However, with the increase in lifestyle diseases, the medical cost has also gone up, especially for urban dwellers. Most of the medical issues crop up in your old age, which can leave a big dent in your retirement savings.
By planning your retirement finances, you can invest in separate insurance policies that will provide you and your family with ample coverage against medical bills.
- Lack of income: The only major drawback of retirement is losing out on regular paychecks to support yourself and your loved ones. Unless you have held a job that provides a pension upon retirement, you will have to invest in other avenues while you are working to ensure regular income in the form of return on investments during your retirement period.
Amongst the many options of retirement plans in India, most financial advisors suggest making investments that will support you during your golden years. One such investment is getting an annuity plan.
- Financial freedom: With many people choosing to have kids later in life, there has been a shift in how life post-retirement looks like. For the previous generation, it was natural for the retired parents to turn to their children for financial support and taking care of their general well-being. In today’s situation, when most couples are having their first child in their 30’s, they cannot count on their children to be financially capable of taking on the additional responsibilities of looking after their retired parents. Not only is it a difficult situation, but also an unfair one towards the next generation.
For this very reason, it is best to aim for financial freedom, using retirement investment plans to enjoy a stress and guilt-free life.
- Tax rebate: One of the biggest advantages of planning your finances is the option of making tax-saving investments. These investments help you save money in the present in the form of tax benefits, and at the same time, help you plan a secure future.
How to plan for your retirement?
Now that there is clarity on why it is important to plan for your retirement, the next step is to understand the factors you should consider in how to plan for your retirement.
Take your age into consideration:
Your age will directly impact the amount you would need to invest annually towards creating a retirement corpus. The sooner you start saving for your retirement, the less it will burden you at a later stage.
For example, if you start putting aside ₹5000 every month towards your retirement corpus at the age of 25 years, you shall be able to collect at least ₹75 lakhs with compounded interest by the time you retire at 60. On the other hand, if you start saving for your retirement at the age of 40, collecting ₹75 lakhs will require you to put aside at least ₹25,000 monthly.
Determine the corpus amount:
For you to decide on how much your retirement corpus should be, you will have to calculate your monthly expenses and factor in costs like medical treatment, inflation, and contingency funds. You can turn to a financial consultant to help determine the final amount and work on your investments accordingly.
Narrow down on investment plans:
There are plenty of pension plans available in the market for you to choose from. You should select a plan that suits your needs and can be supported by your income. Investing in an immediate annuity plan is one such option. The immediate annuity plan allows you to invest a lump sum of money and begin receiving the payouts immediately. This is a great option for people who are either retired or close to their retirement age, as you only have to pay the premium amount once.
Retirement is a phase in life that you should be able to cherish instead of having to worry about money. The best way to ensure that your golden days are happy is to plan your finances in a manner that allows you to continue living life as per your standard of living.
Tata AIA Life Insurance retirement solutions offers you a choice of insurance policies that cater to every phase of your life. Amongst those policies is the insurance annuity plan, which provides you with the needed financial support to enjoy your retirement.
For more details on the retirement plans from Tata AIA Life, get in touch with us today!