Your retirement Should not be a state, It should be a statement
What is Retirement?
- R:Redifine
- E:Enjoy
- T:Travel
- I:Independence
- R:Relax
- E:Energize
One question arises in our mind why should we plan for Retirement Planning now? some people say its too early to plan for retirement. Before getting the answer, we first need to understand why the Retirement Plan is necessary now a day. In ancient time people hardly care for retirement plan but in recent time retirement plan is big concern for every individual because of following reasons.
Nuclear Family
- In India, due to development, industrialization and urbanization, joint family system is disappearing. In ancient time, there was system of joint family where not only grandfather, grandmother, their all sons and wives of sons and grand children live together.
- Families earn from traditional sources like agriculture and related works.
- As soon as children became youth, they started work in their traditional business.
- Any family member hardly needed to migrate for earning out of their villages.
- But due to development in economy, urbanization and increase in populations, all family members can find difficulty to earn from traditional works from their own native village.
- Now youth has to migrate out of native place for livelihood and education of children which destroys the system of joint family.
- In joint family, old and weak family member who couldn’t work has no worry of his/her livelihood, but in nuclear family every person has worry of his retirement.
- Thus, retirement plan becomes necessary people living in nuclear families.
Increase in life expectancy
- After independence, because of better medical facility life expectancy is increased.
- The person spends early 25 year in study and another 5 year in settlement of business or jobs. Actually most of people start to earn at age of 30. The person retires at age of 60 from job or become unable to work or do business after age of 60 due to old age.
- But as life expectancy is increased, the person lives more after age of 60 than before.
- Suppose the person lives 20 year after age of 60. Now question arises that the person work and earn only thirty years and he has to live as retired (without income) for twenty years.
- Thus, the person has to depend on his savings of 30 year for rest 20 year.
- Money inflation has made the situation worse because your current saving becomes nominal saving in future due to money inflation.
- Thus, you have to plan for retirement from now and invest your savings in such investments which provide your savings protection from inflation.
- Fixed deposits earn interest at the rate of around 7 to 8% per year. But the inflation rate is also near the interest rate which makes your savings nothing more in real sense.
- Let’s understand by an example.
Suppose you start to save from age of 30. You save Rs 20000 at the end of age of 30. You put this saving in fixed deposit. As per current scenario, your savings become double after 9 year. Means at age of 39 year, your first saving become Rs 40,000. Suppose you re-deposit that Rs 40,000. At the age of 48 year, your saving becomes Rs 80000 and at the time of your retirement the saving of Rs 20000 becomes Rs 160000 only. We assumed that the interest rate will not go down which is not possible because as economy develops, interest rate decrease gradually. We have seen that our saving become double in 5 year in recent past but now we have to wait 9 year to make our saving double.
Now inflation rate is increasing day by day. What you can buy now from Rs 20000 can’t be bought after 9 year from Rs 40000 and can’t be bought from Rs 160000 after 36 year.
Thus, inflation prevents your saving from increasing in real value. So, the person has to not only plan for retirement now but also choose to invest in such a way that he can overcome inflation.
Increase in cost of living
- Again the inflation creates panic in our life.
- The cost of living increases year by year. Our parents can manage house hold expenses within Rs 10000 but we have to spend Rs 20-30 thousand for the same. But after 30 year, our house held expenses will surely be over 1.5 lakh.
Increase in health and travelling expenses
- After retirement, expenses will not come down but increase.
- You may think that there will be fall in some expenses, but health expenses and travelling expenses must rise after retirement.
Early retirement
- Our parents retire at age of 60. But it’s not rule that we would also retire at the age of 60.
- Corporate world prefers youth for work. Due to more supply of youth and less creation of job (job demand and job supply), we may be forced to retire early.
Benefits of Retirement Planning
Benefit of low inflation rate
- You can benefit from inflation by starting at early age.
- If you save Rs 5000 now will be same as you save Rs. 75000 after 30 year. But if you save Rs. 5000 now and invest logically, your outcome will be far more than Rs. 75000 due to compounding of investment and re-investment of earning on investment.
- Early saver has to invest less amount in comparison of late saver.
Benefits of compounding
- If you plan for your retirement planning now and start investing in retirement plans, you will get benefit of compounding.
- If you start to invest for retirement at age of 30, your first year investments will have 30 year time span, second year investments will have 29 year time span and so on.
- If you start to invest for retirement plan at age of 45, your first year investments will have 15 year of time span and so on.
- If you start invest now, earning of your first year investment will be re-invested every year.
- In simple words, earning on your first year investment will be re-invested 29 times, earning on second year investment will be re-invested for 28 times and so on.
- Thus, you can invest more and can re-invest more.
Retirement plan work as safeguard of your assets and property
- Without retirement plan, at the time of retirement the person has to sell his property to survive
- In his life style or at any medical or any other emergency before retirement.
- Person has to sell his property to overcome emergency. But if you have retirement plan, you will not be compelled to sell your assets at retirement or at any emergency.
Tax deductions
- Investment in retirement plan or pension plan is mostly exempted from Income Tax.
- Investing in retirement plan from now means you saving your tax money from now.
Freedom of children
- You are good parents and your children will take care of you.
- But if you invest from now in your retirement plan, your children will have no financial responsibility of you and your children can live without any worry of you
Peace of Mind
- No one can predict future but we can secure future by planning now.
- If we start planning now, we can live happily at age of retirement.
- We can live happily now because we know we have made planning for our retirement.
Voluntary early retirement
- All people dream of retirement and peaceful life.
- If you plan for retirement now, you can get early retirement because you have no worry of livelihood. You can take retirement at age of 50 instead of 60.
- You can enjoy your dream life much more and at early age
- Retirement once arrived can’t avoid, so choose what you want.
The retirement plan is like a game of cricket. If you make more run in initial innings, you will have no pressure at last innings.
“Rich people plan for 3 generations, poor people plan for Saturday night”
So decide now in which category you want to be:)