What is Retirement Planning and its Benefits?

After working hard your entire life and prioritizing your loved ones, there comes a time when you need to do the same for yourself. In the golden years of life, your potential to work might not be the same. You might feel like travelling the world like you always wanted to, or having mundane yet blissful moments with your loved ones. To do all the things you desire post-retirement, you need to secure a regular income for yourself – those that are inflation-adjusted and continuous.

To get a sizeable post-retirement corpus, you have to plan ahead of time. This planning, also known as retirement planning, helps you prepare for late or early retirement. But how do you go about retirement planning, and what do you need to secure regular post-retirement income for yourself?

How do you plan for your early retirement?

Whether you want an early retirement or a late one, it is best to start retirement planning as early as possible. Here is how you can go about it:

1. Calculate your post-retirement expenses.

To understand how much funds is needed to maintain your lifestyle in your golden years, calculate all your current and potential expenses. Specific expenses like utility payments may remain the same. Others like healthcare costs will be new to you. Take into account all your goals and responsibilities. Come to an approximate monthly or annual amount and multiply that with the then inflation rate. This Retirement Calculation will give you a wise estimate.

2. Start saving and investing early.

Once you have a clear idea of how much you will need to sail through your second innings, you need to start finding ways to bring the figures you require to lead a comfortable life. Two of the evergreen and effective financial routes that can help you achieve this are saving and investing, especially as a salaried employee or small business owner. Savings pave the way for fruitful investing - and the earlier you start saving and investing, the better. This early effort can allow you to make the most of compounding – a mathematical principle that grows your money multi-fold over time. The longer the duration of your retirement investment is – the higher the earnings.

Retirement planning has several benefits:

1. It helps grow your wealth to its maximum potential

As mentioned above, the power of compounding works best when given a longer time. The more you postpone your retirement planning, the narrower profits you reap. Moreover, as most retirement planning investment avenues are non-linked, the returns earned on them are mid-level, so starting early in life will help you maximize that potential. Besides this, it gives you peace of mind.

2. It helps you save on retirement investment costs.

Not only does retirement planning give you a clear idea of your income needs, but also gives you a head start towards finding an investment and retirement savings plan early on. An early buy can get you several age-related cost advantages, as most insurers charge lesser premiums for young policyholders with a stable medical history.

What are the types of retirement savings plans?

Successful retirement planning ultimately leads you to a stage where you can start investing. The clarity you achieve and the savings you pave the way for retirement investment. Before you find the best retirement plans, it is crucial to know the various types of retirement savings plans and their features. Most retirement plans provide a regular income in monthly, quarterly, or annual instalments to help you meet your regular needs.

1. Insurance plus annuity

In an insurance plus annuity plan, you receive the dual advantages of receiving regular retirement income and life insurance coverage.

2. Deferred annuity:

In a deferred annuity retirement savings plan, you receive the income payouts a few years after the completion of the premium paying term.

3. Immediate annuity

In an immediate annuity retirement savings plan, you receive the retirement income payouts right after the completion of the premium payment/premium paying term.

4. Lifetime annuity

In a lifetime annuity plan, you receive the retirement income payouts for your entire life starting from the end date of the premium paying term.

What are the benefits of retirement savings plans?

Retirement savings plans are ideal for building a sufficient corpus for the later stages of life. Here are the core benefits of some of the best retirement plans:

1. Provides a guaranteed source of income:

A retirement savings plan gives you a guaranteed and fixed source of income for a long period (even up to your lifetime). The best part about it is that it gives you periodic income in monthly, quarterly, or yearly instalments. This feature gives you the complete flexibility to fulfilling costs and goals from time to time and managing your money efficiently.

2. Secures your loved ones in your absence:

Some of the best retirement plans provide you with life insurance coverage. Life insurance protects your loved ones in your absence caused due to unforeseen eventualities like death, accidental death, and the like. It gives an immediate and fixed death benefit to your family members and helps them sail through tough times.

3. Gives you tax benefits:

A retirement savings plan also gives you the opportunity to save on paying taxes. With it, you can claim deductions on the premiums paid towards the retirement plan up to ₹1,50,000 in a year as per Section 80C of the Income Tax Act, 1961. You even save tax on the death benefits of the policy under Section 10(10) of the Income Tax Act, 1961.

To sum it up:

Retirement planning is necessary to live a stress-free and financially independent life in your second innings. It gives you the wings needed to take control of your own future and experience life in peace.

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Doesn’t the thought of retirement sound blissful? No work, no deadlines, and all your hours spent doing the things you love, like travel, painting, and even napping in the afternoon! If you want your retirement to be what you have always dreamed of, start retirement planning now and save a considerable retirement corpus in time. The online Retirement Calculator can help you plan your future financial goals and ensure you achieve them within the stipulated time.