Learn About the Significance of Retirement Planning

Like in most Indian households, you too have probably grown up hearing your parents talk about saving money, spending prudently, investing on assets and foregoing luxuries to build wealth for the future. They were actually planning for their retirement. Planning for your retirement from an early age is very important. 

When it comes to savings and investments most of us live by the philosophy ‘live life like there is no tomorrow’ and this philosophy has landed many in a financial puddle. Though it is important to live the present, it is also equally critical to plan for your future. If you start planning your investments right from the beginning of your career you can retire like a millionaire!

Many finance experts have emphasized the importance of investing early. Follow this article to discover the significance of retirement planning, how to plan for it, and how a loan against property can help in times of post-retirement crisis.

What is Retirement Planning?

Simply put, it refers to the financial planning that begins today to prepare you for the necessities and expenses that will arise when you retire and lose your earning potential. Retirement planning includes cutting unnecessary expenditures, improving saving rates, identifying different earning sources, and investing in various schemes. 
 
There is no specific time to begin retirement planning, but the sooner you start, the easier it will be to achieve your future goals.

Why Is Retirement Planning Important?

Planning for retirement allows you to be prepared for the future. Be it fulfilling your dreams after retirement or securing your medical emergencies, planning your retirement well help you live a stress-free life even when you are not working.
 
Here are some of the reasons why planning for your retirement is so important –

1. Rising Inflation

   Given the household expenses in the next 20 years, your current wealth may turn out to be a drop in the bucket. 1 kg of wheat flour, which costs Rs 30 today, may cost Rs 60 in 2050.
    
   Inflation negatively impacts the value of money you have accumulated over time. So, keeping your coins buried under the soil in a pot makes no sense anymore. Rather, invest your money in inflation-indexed bonds to ensure that your money grows at a rate higher than the inflation. This will help you deal with rising costs after retirement.

1. Medical costs

   Coping with medical uncertainty can put you in a financial turmoil if you do not plan for your emergencies well. With age, the risks of your health issues increase exponentially, especially if you are not following a healthy lifestyle. Be it hypertension, diabetes, Alzheimer’s, arthritis, eye problems, hearing issues, or hair thinning, most of these issues come with aging.
    
   Hence, it is very important to get a health insurance that covers all and any kind of health issues. There are many insurance policies that cover critical illness, consultation fees, prescription bills, pre and post-hospitalization expenses, and a few other health-related expenses. Do your research well and go for the one that offers you maximum coverage.  Along with this, it is also important to keep some of your savings aside to cover the costs that come with medical treatment.

1. Get your responsibilities covered

   Another big thing that you might have to cover in your retirement plan is the responsibilities towards your kids. Whether it is their education, higher studies, or marriage, it is wise to invest in high returning schemes to get these expenses covered. Also, make sure to get a life insurance policy, pension policy and other such policies to get your family covered in case of uncertainties.
    
   In addition to this, if you have any loans or liabilities against your property, it is important to close them before your retirement. Also, make sure to get loan insurance on all your open loan accounts. This will protect your family from the stress of paying off the loan in case of any misfortune.

1. Lack of social security

   Retirement planning's importance can be sensed with the fact that not all Indians enjoy social security benefits. Only a government employee in India is eligible for a pension, gratuity, and medical benefits (post-retirement). These benefits are not available to individuals working in the private sector or self-employed.
    
   If you only put effort into saving wealth rather than investing, you may not be able to spend a comfortable evening in old age. The best step here is to invest in a plan like the National Pension Scheme (NPS) that provides regular monthly income in the form of a pension. 

1. Increased life expectancy

   Another reason that makes retirement planning very important is the life expectancy of people. The advanced medical facility has resulted in an increase in life expectancy. It means that ten years ago if you were saving or investing with 70 years of life in mind, you should now increase it to 80.
    
   Though in India, there was a culture of children taking care of their parents, this is now changing. With increased cost of living, strenuous lifestyles and nuclear family set up, parents should not see their children as their fixed deposits and plan for their retirement from an early age.

Also Read: How do I invest Rs 25 lakhs to generate a monthly income?

How to Plan Your Retirement?

Retirement planning requires effort as well as knowledge of different investment schemes available in the market. Here are some pointers to assist you.

• Choose your investment horizon wisely. Consider how many years you have left in your retirement. For example, if you are 35 years old and want to retire at 55, you should plan aggressively because your investment horizon should not be less than 20 years, and the expense you must plan for is until you turn 80.


• Determine your current expenses. Include household expenses, debt obligations, and children's education costs. Once you have decided, start putting money aside every month for a contingency fund and avoid using it before you retire.


• Plan your investment portfolio meticulously. Maintain a separate portfolio to meet your pre and post-retirement objectives. Avoid investing in the equity asset class for a better retirement and instead concentrate on government-backed debt instruments.


• Start early retirement planning to give yourself enough time to accumulate wealth. Furthermore, because young people are considered active and disease-free by insurance companies, the premium for health and life insurance is generally much lower.

How Can a Loan Against Property Help with Retirement

While many loan products are not available to people who are about to retire, a loan against property is an exception. You can apply for this loan even after retirement, and the loan tenure can be a maximum of ten years as long as your age does not exceed 75 at the end of the term. Here are some benefits of this loan product for retirees. 

• Flexible usage

  Dealing with unplanned expenses appears difficult when you rely on a pension or a small income from a side business. A mortgage loan secured by real estate comes with usage flexibility. You can use this loan to deal with a medical crisis, a child's wedding expenses, or start a new business to kickstart your new journey post-retirement.

• Reverse mortgage

  This is a type of loan against property designed especially for the elderly. Unlike traditional mortgages, which require monthly payments to the lender, reverse mortgages operate differently. The lender offers you monthly payments for a set number of years. You can repay this loan by selling your property. But if this repayment does not appear to be feasible, you can continue to live in your home until the end of your life, after which the lender will auction off the mortgaged property to recoup their losses.

• Affordable interest

  Getting indulged in additional monetary burdens during retirement creates a financial mess. If you rely on an unsecured loan, interest rates can be stressful. Mortgage loans have low-interest rates because the funds are backed up by valuable real estate. Furthermore, this loan provides a substantial amount of funding, ensuring that you can easily navigate any monetary requirements that may arise.

Also Read: Beginner’s Guide For Taking A Loan Against Property

To Conclude

Planning your retirement might seem irrelevant to you in your working days when you are earning lakhs. But if you skip this step, you will be unprepared for inflation and medical ailments common in old age, and will leave your loved ones financially vulnerable. You should begin planning for retirement as soon as you start your career. Build a strong investment portfolio and diversify your holdings rather than putting all your money in one place. In case of an emergency, you can always take the assistance of a loan against property.