What is the retirement planning: Let’s look at your preparations for retirement, understand what financial resources one needs and how to prepare for it.
Retirement is that golden phase of one’s life, where one does not have to work to earn money. During retirement, they have less responsibilities and more time and freedom. This phase of a person’s life can be a beautiful new adventure, but the condition is that they are financially secure and ready for this change.
Globally, there are an average of 3.4 working people to support or support 1 retired person. Fast forward to 2050 and this number will reduce to 2. Japan is already in this situation and over the next two decades, more than 35 other countries will join Japan’s ranks in having two working people to support one elderly person. Countries with aging populations are already addressing this need by improving financial literacy, raising the retirement age, providing comprehensive sponsored medical facilities, and even creating “care robots” to assist their senior citizens. We are on our way to reduce the challenge.
But what about a young country like India? While our average age is currently 30 years, we will experience major demographic changes in the next 20 to 30 years. Due to the development of science and technology, the average age of people in India is also increasing, that is, people are living longer. Additionally, we are working for fewer years because we are studying longer and joining the workforce later. Thus, the main risk now in retirement is that we may not be fully prepared for financial freedom at that time. Are we ready to take this risk? Let us look at some things to determine your preparations.
Keep in mind 4 things related to retirement income – The 4 pillars of retirement income are social security, employment-based plans, personal retirement assets and family/social structure. Social security in India is not as developed or comprehensive as it is in developed countries. Only the organized sector and people working for the government are eligible for employment-based pension schemes. Social structures are changing, and people are moving from combined family system to nuclear family system, so no one is dependent on family support for income after retirement. Could. This leaves only one reliable retirement income pillar for Indians – which is personal retirement assets.
Inflation is secretly creating challenges – Inflation is continuously increasing. From groceries to electricity costs, taxi fares to medical costs, inflation affects the prices of all goods and services. For example, a monthly expenditure of just Rs 30,000 will increase to Rs 1.40 lakh in the next 30 years (assuming inflation rate of 5.3%). That too when we continue to adopt the same lifestyle. If lifestyle inflation is added to this calculation, one’s monthly budget will increase even more.
This becomes important in post-retirement life, where there is no inflow of new income and inflation can reduce the retirement fund you have prepared. Therefore adequate planning is necessary.
How much are we investing? A study conducted by the Indian Institute of Retirement in collaboration with CFA Institute and the University of Pennsylvania found that the average retirement savings rate in India is just 8 percent of annual income. Suppose the average annual salary of 30 people is Rs 10 lakh. So, on an average, they save Rs 80,000 every year for retirement. If someone continues this for the next 30 years, he will accumulate a fund of Rs 1.75 crore. Is this fund sufficient?
How much fund do we need for retirement? If we assume a monthly expenditure of Rs 30,000. With the inflation rate of 5.3 percent, this Rs 30,000 will reach Rs 1.40 lakh in the next 30 years. That means, the work which currently costs Rs 30,000 will require Rs 1.40 crore after 30 years. Assuming that the life expectancy is 90 years, a person requires a retirement fund of Rs 5.1 crore to maintain the same lifestyle. There is a huge gap of Rs 3.5 crore between the retirement we want and the one we are preparing for.
So, what’s stopping us from investing in retirement?
Thinking of focusing on immediate needs- Psychological myopia means that our thinking focuses only on meeting the present needs instead of setting long-term goals. The same happens with retirement planning, where we give priority to immediate needs and wants, which leads to less savings for retirement. Retirement may seem far away, and it may be difficult to understand its importance. Overcoming this mental barrier is important for a long, happy retirement life.
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