Writing a retirement plan might seem like a task only older people or those really good at math should do. But actually, retirement planning is just another way to guarantee that your future self will be happy, safe, and have enough time to enjoy life.
You can also think of it as getting ready with a nice lunch box for the tremendously long train journey. You will want to make sure you have enough good food to last the whole trip.
Let’s see a simple, step-by-step guide for creating your own plan.
1. What is Retirement Planning?
As a worker, you get monthly earnings. But the time will come when you won’t want to work anymore. Maybe it’s time for you to relax, travel, or simply be with your grandchildren all day. However, even after stopping being a worker, your bills will not stop. You will still need money for food, clothes, housing, and medicines.
Retirement planning is setting aside a fraction of your money today so you are left with a good amount when the time comes. It’s really not about getting wealthy. It’s about having freedom.
2. Why Start Now? (The Magic of Time)
The earliest you can get going is right now. It’s totally fine whether you’re at 20 or 40 years of age. There is an amazing principle of money saving called “compounding.” The best way to describe it is by giving an analogy of a mango tree. If you plant a tiny seed today, it will grow at a slow pace. After several years, it will turn into a gigantic tree. And soon, it will be showering you with thousands of delicious mangoes each year totally free of charge.
If you decide to start saving early, even a minimal amount of money will, in time, grow to be a huge pile of money after 20 or 30 years. If you start late, you will have to save much larger amounts each month just to be in the same place.
3. Step 1: Know Your Goal
How much money do you realistically require? You can easily determine your financial necessity by asking yourself these simple questions:
● What kind of lifestyle do I want? Am I living a minimalist life in my room, or do I want to travel and explore new places?
● How much would be the expenses? Prices rise every year.
● Do I want to stop working at 55, 60, or 65 years of age?
Make a note of your spending each month based on the lifestyle that you desire.
4. Step 2: Clear Your Debts
Don’t start stacking your savings if your foundation is not strong and smooth. I.e., pay off your debts like credit cards or personal loans. Because of the interest, loans are like a monthly drain on your finances. Additionally, interest rates on loans can be quite high and this is essentially taking money from your pocket every month.
However, once you pay off your loans, you will be able to save comfortably, and it will be a satisfying experience most of all.
Step 3: Put Your Money in Different Pots
You should not keep all your money in one place. What if that place is lost? Then you lose everything. So, divide your savings and keep them in different places, which are quite safe. In India, we have a few great and pretty simple options:
Safe Pots (Low Risk)
● PPF (Public Provident Fund): The government supports this. You can totally rely on it, it offers a nice interest rate, and also, it’s tax-free.
● EPF (Employee Provident Fund): If you are a company employee, this is an automatic deduction from your pay. Over time, it creates a significant cushion for you.
● NPS (National Pension System): This is a separate pot kept just for retirement planning. It increases your capital and, in old age, provides you with a stable monthly income.
Growing Pots (Medium to High Risk)
● Mutual Funds: Your money gets invested in the top Indian companies here. It can increase much faster than a bank account, helping you to beat inflation. There is some risk involved, but historically, over a long duration, it has performed very well.
Step 4: Protect Your Health
Our bodies require more attention as we age. Suddenly having to be hospitalized can wipe you out financially. Without health insurance, that one big hospital bill could mean the loss of your entire retirement savings.
Get a health insurance plan that suits your needs and the needs of your family. Think of it as an umbrella during a rainstorm; your savings remain dry and protected.
7. Step 5: Start Small and Stay Steady
You are not required to have a big pile of money in order to begin. You can initiate it by putting aside only 1,000 rupees or 2,000 rupees each month through a program called a SIP (Systematic Investment Plan). This will simply take a small portion from your bank account every month and invest it.
The secret weapon here is being consistent. Don’t use this money for buying a new phone or going on a holiday. Just let it sit, breathe, and multiply.
Your Action Plan for Today
Don’t be frightened by fear. You can start your journey with just three small steps today:
● Examine your bank balance and find out how much small change you can spare this month.
● Open a secure retirement account such as a PPF or NPS in your bank.
● Create an automatic monthly transfer so you save money before you can spend it.
Your future self is there waiting for you years from now. By initiating your retirement planning right now, you are dispatching a lovely present of tranquility, safety, and happiness to that senior version of yourself. Begin small, keep calm, and see your future brighten.
