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Retirement Planning and importance of Retirement Plans
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Early Mistakes, Late Start & Future Hurdles.
Savings and investments should be part of a monthly budget even when young or just starting a career.
You cannot save enough if you are waiting until your late 30's before thinking about savings and investments. Then credit cards and loans will drag the savings with added responsibilities like marriage, children, care of parents, etc.
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Myth vs. Reality in Retirement Planning
- I’m not that old: It’s not about NOW but saving for your old days when you can no longer work full time.
- I’ll wait for a lump sum is just an excuse to postpone planning or procrastinate.
- Assumed Family/External Support: It’s better to be prepared for eventualities and have contingency funds in hand.
- Financial Requirements Decrease: Medical costs increase with age. Inflation and other factors might also come into play.
- I will not live that long or I won’t retire: People tend to live longer, but they will suffer from medical ailments.
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Retirement Goals
To have a secure and financially independent retired life during your golden years with regular post retirement income, a corpus of savings/investments and a safe shelter or home.
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Use Power of Compounding ...
To achieve your retirement goals and objectives – you need to have the right amount of corpus to take care of your regular needs post retirement.
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SIMILAR ARTICLES & IDEAS:
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Try making a budget
- Create a full inventory of expenses in front of you: Categorize them into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable.
- You can c...
Financial planning
...is the process which provides you a framework for achieving your life goals in a systematic and planned way by avoiding shocks and surprises.
Maintain a personal balance sheet
It’s a statement wherein you can jot down your assets and liabilities.
- Pull together your bank statements and other proofs of the liabilities
- List down your assets like the bank balance, all investments, home value, and value of other assets.
- Take a sum of all the assets to arrive at the total value of your assets.
- List down your liabilities the (car loan, home loan, credit card balances etc.)
- The sum of all the liabilities will show the value of the money you owe.
- When you subtract the value of liabilities from assets, you get your Net Worth.
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What early retirement means
Early retirement is not defined as when you stop working forever, but as having the freedom and flexibility that saving up enough money can give you if you want to leave a job.
...How to retire early
A good early retirement strategy is built on maximizing three aspects: Income, expenses, and savings.
To build your early retirement strategy, you need to determine your retire early or financial independence (FI) number. It is the amount of money you need for work to become optional. Be aware that the number will (and should) change as you change, and your desired lifestyle evolves.
The money you need for early retirement
Based on a series of papers known as the Trinity Studies, you need to save 25-30 times your expected annual expenses to have enough money to last you for the rest of your life.
This multiple is based on the percentage of your investment growth that you would be able to withdraw per year. A safe early retirement withdrawal percentage is between 3%-4%.
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Uncertainty of Social Security and Pension Benefits
- The aging population is causing fewer contributors.
- More people are retiring due to increased longevity.
- Corporate col...
Unforeseen Medical Expenses
Old age typically brings medical problems and increased healthcare expenses.
Living out your retirement years in comfort while also covering your medical expenses may turn out to be a burden too large to bear.
Estate Planning
Without a well-planned retirement nest egg, you may be forced to liquidate your assets in order to cover your expenses during your retirement years.