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Retirement Planning

Retirement planning involves setting financial and lifestyle goals for after employment ends. It includes saving and investing funds over many decades to maintain independence and quality of life after retiring. There are two main stages - the accumulation stage where funds are saved and invested for 35-40 years, and the distribution stage after retiring where those savings are used to support living expenses. Proper retirement planning provides financial security, independence from family, funds for increased medical costs, tax benefits, and peace of mind in older age.

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Aarti Gupta
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455 views3 pages

Retirement Planning

Retirement planning involves setting financial and lifestyle goals for after employment ends. It includes saving and investing funds over many decades to maintain independence and quality of life after retiring. There are two main stages - the accumulation stage where funds are saved and invested for 35-40 years, and the distribution stage after retiring where those savings are used to support living expenses. Proper retirement planning provides financial security, independence from family, funds for increased medical costs, tax benefits, and peace of mind in older age.

Uploaded by

Aarti Gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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 Introduction

Retirement planning is the process of setting retirement income goals and


the actions and decisions necessary to achieve those goals. Retirement
planning includes identifying sources of income, estimating expenses,
implementing a savings program, and managing assets and risk.

 What is Retirement Planning?


Retirement planning is being prepared for life after paid working period ends
financially as well as all other aspects of life. The non-financial aspects
include lifestyle choices such as spending time during retirement, a place to
live, designated time to completely quit working, and others. A
holistic retirement planning considers all the areas with equal importance.

The level of emphasis on retirement planning varies throughout different life


stages. During the youth, retirement planning only means setting aside
enough funds for retirement. During the middle of the career, it might
change to setting specific income/asset targets and taking the necessary
steps to realise them. Once you reach retirement, decades of savings will
pay out.

 Needs for Your Retirement Planning 


Financial security makes most things in life more convenient. Retirement
planning provides that surety of being secure in monetary terms throughout
life, regardless of employment. Let’s discuss the multitude of such reasons
that make retirement planning essential for life.

1. Independence 
Most people worry about being a burden to their family in their old age. It
can also be emotionally distressing to be dependent on someone else for
your expenses. Retirement planning allows you to maintain a good lifestyle
without depending on family members.

Some people think of retirement as a time for achieving goals that were
ignored due to more pressing needs in life. If you put in time and effort into
retirement planning, such dreams can come true with ease.

2. Life Expectancy 

You may not realize it now, but life after retirement is considerably long. For
example, if someone retires at the age of 60, the average life expectancy of
70-75 years gives them many years to manage their post-retirement fund.
This is what makes retirement planning at the right age more crucial
3. Medical Costs 

With each passing day, the cost of medical treatment is reaching new
heights. A medical emergency can burn a massive hole in one’s savings.
Furthermore, people are more susceptible to illnesses at an older age.

Retirement planning is of immense importance to meet such expenses and


receive quality medical care at a time of need.

4. Tax Relief 

Each earning individual wishes to reduce their tax liability and maximize
their savings. The government of India allows certain tax benefits on several
financial instruments, which you can include in your retirement planning
agenda. It is an effective way to plan for your future and save money in the
present simultaneously. Tax benefits are as prevailing tax laws subject to
change.

5. Peace of Mind 

Your peace of mind is invaluable. The stress of managing money to meet


your long-term and short-term expenses can be dreadful. It may even cause
health-related issues such as hypertension and other unfortunate illnesses.
It is more important to shield yourself from such problems at an older age.

Retirement planning is an effective method of ensuring a happy and healthy


life for a long time.
 Stages in Retirement Planning :
There are two distinct stages in retirement:

1. The Accumulation Stage: Accumulation phase brings to life the


planning done in the planning phase and is the longest phase in an
investor’s life cycle.

 The accumulation phase is the second phase in the investment


phases: planning, accumulation, distribution, and legacy.
 The accumulation phase presents a lot of control in some key
aspects of investing.
 Typically, the accumulation phase is the longest part of the
investment lifecycle, spanning over 35-40 years and making it
important to have a solid strategy in place.

 Real-World Example of the Accumulation Phase

Assuming an individual begins to save at age 25, the accumulation phase


can be 35-40 years, depending on when the individual chooses to retire.
Most people retire around 60-65 years, and the average life expectancy is
85-90 years in most developed economies of the world, leading to a 25-30
years period of distribution.

Investors can be better positioned by focusing on effective investment


strategies during the accumulation period in order to receive a better payout
at the end of the phase. The accumulation phase is analogous to laying out
the foundation of the building, and the portfolio growth is contingent on how
well it is laid out.

2.The Distribution Stage : This phase starts after you retire. At this
stage, your income has stopped. The efforts you have put over the years to
create a retirement fund and other investments will finally come to your help
at the distribution phase.

The success of the accumulation and preservation stage is judged in this


phase.

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