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| The essence of retirement planning |
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| Retirement planning is an essential element
of any financial plan. Retirement planning is a comprehensive
process for determining how much money you will need when you
retire. Retirement planning also helps you identify the best
ways to save for retirement given your financial situation.
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| If you are like most people, you probably
think retirement planning is only important when you retire.
However, proper planning requires a much longer period of time
-- from the day you start working until well beyond your actual
retirement date. In fact, it's never too early to start planning
for your retirement. |
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| At age 65, the average man will live almost
19 more years, while the average woman will live another 22
years. We will probably spend 25 per cent to 30 per cent of
your life in retirement, requiring vast sums of money to support
yourself. |
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| In India, many of us put off retirement planning
because we are too busy trying to meet our immediate financial
needs to think about what will happen 20 or 30 years hence.
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| It's easy to understand why meeting your monthly
bills seem more important, especially if your retirement is
still far off. But here's something to think about: As you move
through your life, you will experience many life events that
will affect your future financial security -- such as getting
married, starting a family, purchasing a home, and sending your
children to college. Each of these events will affect your ability
to plan for your future financial security. If you develop a
flexible long-term plan, you will can overcome these obstacles
and ensure financial independence in your retirement years.
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| Identify personal goals |
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| When defining your retirement goals, your
description should be specific and measurable. For example,
a goal to "retire at age 60 with resources to sustain current
living expenses of Rs 1,00,000 per year" is a goal, which
is both specific and measurable. |
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| If you have several goals, you should prioritize
them so that your resources will be allocated to the most important
goal first. By assigning a priority to each goal, you also ensure
that secondary goals won't take precedence over primary goals.
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| In this process, it is important to understand
your needs. To determine the appropriate percentage for your
retirement, you need to determine if any of your current expenses
will change when you retire. Will your travel and leisure expenditures
increase? Will your job-related expenses for commuting and clothing
change? Will you have to pay more for medical costs? It's generally
accepted that many of your routine annual expenses will change
during your retirement years. The trick is determining whether
those expenses will increase or decrease, and by how much. |
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| Both living expenses and inflation are important
in understanding your retirement needs because you are planning
for a period of time, not a point in time. |
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| Review progress |
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| Once you develop your plan, the process is
dynamic. As you revise and prioritize your projected goals,
you may see changes in your estimated income needs, projected
resources, and other assumptions. It's a good idea to review
your action plan regularly and if necessary, make changes to
make sure it still meets your needs. |
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| Finally, a successful retirement plan requires
your active involvement and long-term commitment. |
