March 28, 2024

How to think about retirement planning|creting a retirement plan|easy financial planning



Published May 26, 2023, 7:20 p.m. by Arrik Motley


When it comes to retirement, there are a lot of factors to consider. It’s not just about how much money you’ll need to save – although that’s certainly an important part of the equation. You also need to think about when you want to retire, what you’ll do in retirement, and how you can make your money last.

It can be tough to know where to start when it comes to retirement planning. But luckily, there are some easy steps you can take to get started.

1. Figure out how much money you’ll need to save.

The first step in retirement planning is figuring out how much money you’ll need to have saved. This number will be different for everyone, depending on factors like your lifestyle, health, and desired retirement age.

One way to estimate how much you’ll need is to use the “4% rule.” This rule of thumb says that you can withdraw 4% of your nest egg each year in retirement and have a good chance of your money lasting 30 years. So, if you want to retire with $50,000 a year in income, you’d need to have saved $1.25 million.

Of course, this is just a general guideline. You may need more or less than this depending on your individual circumstances.

2. Start saving now.

The sooner you start saving for retirement, the better. That’s because of the power of compound interest. This is the interest you earn on your investment earnings – not just your original investment.

Compound interest can have a big impact over time. For example, let’s say you start saving for retirement at age 25. If you save $200 per month and earn an average annual return of 7%, you’ll have nearly $1 million saved by the time you retire at age 65.

3. Consider using a Roth IRA.

A Roth IRA is a retirement savings account that offers some big benefits. First, contributions to a Roth IRA are made with after-tax dollars. This means that you won’t get a tax deduction for your contributions now, but you will be able to withdraw the money tax-free in retirement.

Second, Roth IRA earnings grow tax-free. This is a big advantage over a traditional IRA, where earnings are taxed when you withdraw them in retirement.

And finally, there’s no required minimum distribution (RMD) from a Roth IRA. This means that you can let your money grow tax-free for as long as you want – even until your death.

4. Diversify your investments.

When it comes to investing for retirement, diversification is key. This means investing in a mix of different asset classes, such as stocks, bonds, and cash.

The goal of diversification is to minimize risk and maximize returns. By investing in a variety of assets, you’ll be less likely to lose money if one investment goes down in value. And over time, diversification can help you earn higher returns than if you just invested in one asset class.

5. Review your retirement plan regularly.

Your retirement plan is not set in stone. As your life changes, your retirement plan should change too. That’s why it’s important to review your plan regularly – at least once per year.

During your review, take a look at factors like your age, income, investment portfolio, and desired retirement age. If any of these things have changed, you may need to make adjustments to your retirement plan.

Making smart decisions about retirement planning can be difficult. But by following these simple steps, you’ll be on the right track to a comfortable retirement.

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Hello, my friends!

Perhaps, I may offend you,

but let me tell you the truth.

80% of Indians are not ready for retirement.

The data of the results of a survey of The Economic Times says this, not me.

So, let me share one real-life example.

The age of Mr. Mehta is 50 years.

And a few months back, his son conformed to a job

and the EMI for his home loan has finally completed.

Mr Mehta thought that he is now financially free.

He built a house and his son is earning.

That's when he decided to call a good certified financial planner

and get his personal financial plan

and understand what amount is required for his retirement.

But when Mr Mehta's certified financial planner

asked him the details about his current investments,

Mr Mehta said that he has his own house

in which he lives.

This is not an investment.

And recently, he spent his employees provident fund money

for his son's higher education.

Plus, there is some education loan with the name of his son

of which EMI, his son will pay from his salary.

His son's EMI is not enough to pay EMI and pay day-to-day expenses,

which means the the responsibily to pay the day-to-day expenses is on Mr Mehta.

Mr Mehta will be able to invest. But will he be able to achieve his retirement goal?

Let's understand why I said that most Indians are not ready for retirement.

And I can promise you that you will get to learn a lot from this video.

So make sure to watch this video till the end.

And before learning anything further, I am Bhavan, a certified financial planner.

And you are watching The Art Of Wealth Building YouTube channel.

Your one-point destination to seek an unbiased consultation on personal finance.

If you want to get your personal financial plan prepared and understand

how you can achieve your personal financial goals,

then WhatsApp on this number.

Now, Mr. Mehta is already 50 years old

and his current monthly expenses are around Rs.40000 per month

and he wants to retire by the age of 58.

Along with retirement, he also has some goals

like going on vacation with his wife once a year

and contributing some money for the wedding of his son.

Mr. Mehta thought that if he accumulates Rs.50-80 lakh in the next 8 years,

then he can retire easily.

But, Mr. Mehta didn't consider inflation

and he got shocked

when his certified financial planner shared these calculations with him.

Mr. Mehta's expenses at the age of 50 are Rs.40000 per month.

If we consider 7% inflation, then after 8 years, when he will be 58 years old,

his expenses will increase to approximately Rs.69000 per month.

And if we assume that he will survive till the age of 85 years

i. e. 27 years after retirement,

without any income,

but inflation will keep rising,

so according to that, in the next 8 years,

he will have to accumulate around Rs.2 crore for his inflation-adjusted retirement.

To accumulate Rs.2 crore in 8 years,

he will have to invest around Rs.148000 every month for an 8% return.

8% because he doesn't have enough time

and he can't take a big risk.

Mr. Mehta didn't expect this amount

and he got stressed after hearing this.

Even his current salary is less than Rs.148000

and investing this amount for him is very difficult,

which means that either he will have to reduce his expenses,

or increase his income,

or he will have to postpone his retirement.

I am sure that you know that it is so important to invest to achieve your financial goals.

But where to start?

How much amount you will require

in the future for your financial goals

like inflation-adjusted retirement, buying a house, buying a car,

vacations, higher education of children, etc.

So if you want to get your financial plan prepared and understand this,

then WhatsApp on this number.

So Mr. Mehta wanted to understand from his certified financial planner

that what does it mean by inflation-adjusted retirement.

So let's try to understand this.

Mr. Mehta's current expenses are Rs.40000.

According to 7% inflation, his expenses will increase to around Rs.43000 next year.

And these expenses will keep increasing every year.

But currently, since Mr. Mehta is earning, he didn't realize that his expenses are rising

because his income is also increasing with the expenses.

But according to our calculations and 7% inflation,

at the age of 58, his monthly expenses will be Rs.69000 per month.

And these expenses will increase by 7% every year.

For example, his expenses will be Rs.74000 per month at the age of 59

and then Rs.79000 per month.

But at the age of 58, Mr. Mehta's income will stop.

So he will have to plan his retirement in such a way

that he can upgrade his lifestyle even after retirement.

And if Mr. Mehta doesn't consider inflation

at the time of his retirement planning,

then probably he will not have enough money

and he will have to be financially dependent on his son,

which he doesn't want to do.

After understanding all these things, Mr. Mehta decided

that he will not let his son make the mistakes he made,

which is investing without a financial plan.

And as his son receives his first salary,

he will ensure that he will invest according to his financial plan.

While understanding the financial plan with his certified financial planner,

Mr. Mehta share some of his personal experience

like, he didn't get any ancestral property

and all of his income at his young age

was used in paying the EMI for his house and household expenses,

and the money that was accumulated in his PF account,

he used it for his son's higher education,

which he should not have done

and let his son take the responsibility for his higher education himself.

Mr. Mehta said that he has always ignored equity investment

thinking that it's too risky

and he invested some money in LIC policies and fixed deposits.

But he didn't realize that these investments generate a return of less than inflation

and after paying taxes, their return is negative,

which means, in real terms, the purchasing power of the currency reduces.

And now he is realizing that the risk of not having money in old age

is way higher than the risk of equity investing and not doing financial planning at a young age.

Mr. Mehta didn't plan an emergency fund for all these years.

And, during an emergency, he preferred taking a personal loan

and kept paying EMIs for them.

A big mistake that Mr. Mehta made

is that he was depending upon his organizational medical insurance.

But today, due to his age and medical history,

no company is ready to give medical insurance to him.

And if any company is ready, then the premium is very high.

Mr. Mehta got to know all these things after consulting a certified financial planner.

So now, what are some common reasons why Indians are unable to plan their retirement?

Number 1, Too Many Expenses.

A lot of people suffer from lifestyle expenses,

which means that along with their income, their investments don't increase,

but their expenses do increase.

So what is a simple solution to this problem?

Prioritize your spending, track your expenses, and try to spend less.

Reason number 2, Finances Are Messed Up.

A lot of people have home loans or personal loans.

Then, their money is invested anywhere randomly.

And they have no control over their income and expenses.

But this is not a reason not to invest for your future.

In this case, the best would be to approach a financial planner

who will analyze your situation and give you a solution to make the situation better.

Reason number 3, Don't Have Money To Start Investing.

Often, our spending increases with our income

and when it comes to investing, we think that we can't save money.

So we have to ensure that we learn to spend mindfully

and we invest a part of our income to achieve our financial goals.

Reason number 4, It's Too Early To Plan For Retirement.

I lot of people have this misconception that they have a lot of time to plan for retirement.

But, the more we will delay, the higher amount we will have to invest

to achieve our goals.

Often, our expenses and responsibilities increase with age,

which means the sooner you start, the better it gets.

Reason Number 5. It's Too Late To Start.

In the case of Mr. Mehta, he thinks that it's too late to start investing

and now, nothing can be done to achieve his retirement goal.

But, something is better than nothing, right?

Or, better late than never.

And if you think that it's too late, then taking help from a planner would be right.

Reason number 6, I Don't Need To Invest.

Mr. Mehta underestimated the amount required for his retirement goal.

He thought that Rs.50 lakh would be enough.

But he forgot to consider that due to inflation, goods will get more expensive.

So most people think that they have enough savings.

But in reality, this is not true.

So, if you want to get your personal financial plan prepared

and understand how you can achieve your personal financial goals

and what action you need to take,

then WhatsApp on this number to get your personal financial plan prepared.

If you got to learn something from this video,

then motivate me to create more such videos by liking this video.

You can also visit our website, The Art Of Wealth Building.

And if you haven't subscribed to the channel yet, then do it right now.

So you will get notifications for our Sunday and Wednesday videos

and you will be able to watch our videos first.

And finally, thank you very much for watching this video till the end.

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