What Is The Right Age To Begin Retirement Planning? Hint: It’s Younger Than You Think

Jul 11, 2018 | 1 year ago | Read Time: 4 minutes | By iKnowledge Team

Retirement planning must become a priority as early as possible. In today’s ever-changing economy, only by saving early and having a robust retirement plan can one look forward to a comfortable retirement. The most basic reason why early retirement planning will benefit is because of the basic principle of compounding.

Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.

Hence, the earlier you start a retirement plan and sustain it, the better will be the bounty in your senior years. In fact it won’t be premature to say that you need to start retirement planning as soon as you have an income and it must be as important as any savings plan.

The first step is deciding your pension amount and corpus. Now you can arrive at these figures in many ways. There are even apps and websites with calculators, e.g. the retirement planner from Aegon Life, but a simple rule of thumb devised by financial planner Bill Bengen in 1994 exists that’s still accurate. It’s the “4 percent rule.”  So, in India, if your retirement plan is a fund of Rs. 1 Crore, you will potentially have a post-retirement income of Rs. 4 Lakhs per annum. The key takeaway should be that the longer you invest in your retirement plan, the less you have to regularly save to meet the optimum retirement.

A sound retirement plan consists of regular investment as well as a review of that investment to optimize savings. As we live longer while tackling the harsh realities of increasingly casualized employment, retirement planning must be front and center as soon as there is an income.

Like the story of the Ant and the Grasshopper, it’s important to save for that rainy day – your salary-less retirement!

Varun Jani points out in a crisp article in the Knowledge Centre of FLAME, your retirement plan needs to counter and account for the effects of inflation, rising health care costs, as well as unforeseeable events and raising costs of daily living including education and marriage costs. With an aging population worldwide, most welfare states aren’t able to keep up. Hence private retirement planning needs to offset the slack.

A retirement plan that enables an early and hassle-free retirement involves adequate life insurance, health insurance, planning for your child’s education and marriage as well as ensuring sufficient retirement income. In all these cases, the younger you are when you start saving the more it will benefit you. Life insurance premiums and health insurance premiums are lower when you are in your early 20s and single. Hence your retirement plan will be easily manageable the earlier you start it.

Source: WitVerve; Income Pre-retirement vs. Age

Source: WitVerve; Income Post-retirement vs. Age

Many websites and apps can help with retirement planning but there are also financial planners who can help. Private players such as Aegon Life offer innovative and tailored solutions that help you easily check off retirement planning. They do the work of a financial planner for you, taking into account the changing and expanding financial needs of people, high cost of living in cities as well the volatility and uncertainty of the global and national economy.  The growing real estate prices and rents in major cities across the globe also add to the burden of retirement planning. Whether you plan to buy a home or rent after you retire, the more you will need to factor it into your retirement plan.

As Amelia Hill chilling points out in the Guardian after a two-month long investigation in 2017 with senior British people, early retirement planning is essential to offset the flailing welfare state. By starting to save for your retirement early privately, you will be assuring yourself of a steady income when salary is a thing of the past.  Hence the earlier (read: early-20s) you build a budget and stick to it, the earlier you create a retirement plan along with a holistic financial plan the more hassle-free and lucrative will be your retirement.

It is not easy to secure your retirement. Hence you need to start early and start small as soon as possible. A disciplined and regularly monitored approach to retirement planning is essential for a happy retirement. All qualities of a happy retired life depend on a sound foundation of financial security and that is possible by early retirement planning. Only by saving substantially while working, and by saving over a as long a period of your working life can you rest on your laurels post-retirement. So for a financially secure retirement, your retirement plan must be to “save early and save well”!

Advt. No.: IA/Jul 2018/4192

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