Retirement planning is one of the most ignored topics among the working population because most people feel that retirement is far away and nearer-term priorities seem important. Once they get near the retirement date, many people realize that they have not saved enough for their retirement and fear losing their financial independence. Retirement is the culmination of the decades of hard work you put in your career. This should be the golden period of your life and you should be free from financial worries.
Why is retirement planning important?
- Inflation: Inflation reduces the purchasing power of money over time. If inflation is 5%, then Rs 100 can buy only Rs 95 worth of goods after 1 year. After 10 years, it can buy only Rs 60 worth of goods and after 20 years, only Rs 37 worth of goods. Your needs will remain the same but your money will be worth less and less. In order to fight inflation, it is very important that your money also grows over time. You need to plan for inflation.
- Rising medical costs: With advancing age, health-related problems are a concern for senior citizens. However, the cost of quality private sector healthcare is increasing at a very fast rate in India. Some studies show that inflation in the cost of medical expenses is around 15% per annum. A serious illness can eat a big part of your retirement savings and put you under considerable stress.
- Falling interest rates: Senior citizens traditionally rely on bank fixed deposit and government small savings schemes for their regular cash-flows. Over the last 20 years, interest rates of government small savings schemes have come down significantly. As our economy (GDP) grows, money supply will also grow and interest rates will come down even further. You need to save more and create a larger corpus in order to generate sufficient income to meet your post retirement expenses.
- No pension: India is largely an un-pensioned society. Private sector employees in India, unlike western nations like United States or United Kingdom, do have not have safety net in the form of a national pension programme. They need to create their own post retirement income stream by saving and investing systematically during their working lives. As such, retirement planning should be one of your most important financial goals during your working lives.