Why should you plan for your retirement? Everybody who is working in his 30s and 40s must be concerned about his savings and retirement planning. However, a large population is still uninformed about the retirement planning and they don’t know how much they should save in order to meet their expenses post-retirement. It is not a matter of how much you’re drawing at the moment; it all depends on your savings and kind of investments you are making. The three types of people There are three types of retirees: the first type is of those people, who struggle to meet their daily necessities in life. If they are at a chemist shop buying medicines, their immediate concern is whether they have the sufficient money to buy all the medicines prescribed by the doctor. These are the most miserable people, who can’t even meet their daily expenses with the money they have. The second type of people, are the people, who are confused whether to buy an expensive gift or an affordable item for their grandchild’s birthday, if they are in a toyshop buying some gifts. The third type of people are, who visit a travel agency and discuss with their travel planner, whether they should go for a tour package for Europe or plan a family vacation in Singapore. It all depends on your retirement planning and how much you save for it. Alarm bells It is unfair to frighten, but it is the real scenario. Most of the people turn up being like the first type of people, who are trying to buy medicines for them at a chemist shop. That means they don’t have enough money to meet their basic needs. The Economic Times conducted a survey in which 3000 people participated and 25% of those confessed that they were saving less than 5% of their salaries. The other 25% people were keeping 5 to 10% for their old age. These are all faulty plans, especially in the wake of inflation. Inflation rises faster than our incomes and after retirement, the healthcare expenditure multiply unexpectedly. It is therefore very difficult to ensure quality healthcare post retirement with a 5 to 10% savings. People don’t trust the certainty of returns on their investments even in the government schemes, simply because almost all the schemes are market linked. Start early, end up rich after retirement Therefore, the best policy is to start saving early in your life. According to the experts, the uncertainty of returns isn’t something we should worry about. What we should worry about is the time when they start saving. The trends show, that most of the people end up poor after their retirement, simply because they start thinking about the retirement planning only after the age of 35 and the more committed investments start only after 50. This delay in planning puts you in very awkward and weak position as family responsibilities increase with time. The magic of compounding shows that small savings in the early part of your career skyrocket after 30- 35 years. A very useful retirement calculator is as follows: http://www.icicibank.com/financial-tools/investment-planning/saving-for-retirement.html Maintain your savings rate According to a study, more than your fund selection and portfolio, the amount of your savings matter a lot. These studies show that people with enhanced savings end up accumulating a large sum of money, compared to the people who save a little less, though they frequently restructure their portfolios. The hare and tortoise story is true in this case. The 12% of your annual income that goes towards your provident fund account alone can make you a millionaire within a period of 30 to 35 years. So if you’re disciplined, the EPF is enough for your life post retirement.
[via Salary in India - NaukriHub Blog]
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