You hate it or you like it but retirement is not optional. You may choose not to study engineering, you may choose not to go on a particular vacation, you may also avoid going to a relative’s wedding, but you cannot avoid retirement. Keeping aside rare exceptions, almost all of us retire at some point in time if we live long enough. Here are some reasons why your retirement planning must begin now.
Inflation
After you know that retirement is inevitable if you live long enough, you should be worried about the next almost inevitable thing in countries like India – inflation. Most financial planners presume that the prices will go up by 6% each year over long-term. In other words, if your monthly household expenditure is Rs 50,000 today, you will need Rs 2.87 lakh to enjoy the same lifestyle after 30 years.
Everything you want to do when you retire will be priced accordingly. Healthcare costs will be priced even steeper. “Life expectancy of human beings has gone up and it is expected to improve. That means longer retired life for each one of us and it translates into larger retirement corpus required,” points out Tanwir Alam, founder and CEO of Fincart.com. To ensure that you will get what you aspire for, you should start funding it now.
“If you decide to keep aside money for your golden years, you should be befriending magic of compounding. If you start early it will work in your favour,” says Abhinav Angirish, founder and MD of investonline.in. For example, if you start investing Rs 10,000 per month at the age of 25 at the rate of 12% per year, you will accumulate Rs 6.43 crore when you turn 60.
If you start investing at the age of 30 you will accumulate Rs 3.49 crore. And if you start investing at the age of 35 you will accumulate Rs 1.87 crore. “Retirement is a far off financial goal and hence most of us tend to procrastinate. It does not help,” says Tanwir Alam.
Tax-benefits
If you frown at the amount of income tax you pay to the government, you should all the more considering saving for retirement. Retirement saving options such as employee provident fund, public provident fund offer tax-breaks under section 80C of the Income Tax Act for investments amounting to Rs 1.5 lakh in a financial year. Contribution to national pension scheme up to Rs 50,000 also enjoys tax break in excess of extant limit prescribed under Section 80C.
While investing in equities if you opt for tax saving mutual funds (equity linked saving schemes), you enjoy tax break and also see growth over long-term.
It serves two goals – it cuts the tax outgo and it also saves for your retirement.
Insurance
It is available easily when you do not want it at all. You need health insurance when you age. But that is the time insurance companies turn wary of giving you high cover. They bring in lot of conditions such as internal limits, deductibles and co-pay term. That restricts the quantity and quality of cover you should be getting.
If you want to avoid such a scenario, buy a cover early in your life. “When you are young you get insurance cover very easily and at a low cost. You can accumulate no claim bonus over the years. You also can steadily increase the sum assured at regular intervals which works in your favour,” says Abhinav Angirish.
The same applies to critical illness covers. Buy it now so that it works for you when you are in need.
Self-respect
If all these reasons do not make you consider starting your retirement planning, this could be the last reason. You do get a loan to buy a house, buy a car, buy any asset, to fund your education, to fund your marriage, but no bank lends you money to live through your retired years.
“As nuclear family becomes the norm, it is more likely that one’s kids won’t stay with him. Even if one’s kids stay with him, it is not a great idea to ask money from kids when one retires,” says Tanwir Alam. He adds, “Generally, one commands respect from his kids and grandkids if he has the ability to give even after he retires.”