Top 6 Reasons Explaining the Importance of Retirement Planning

The concept of retirement in India has undergone a paradigm shift in the last couple of years. Retirement opens a whole new chapter for many individuals, when they pursue the ‘work they love to do’ and convert their hobbies to professions. There’s an increasing trend of individuals opting for voluntary retirement as they reach the other side of 40s and live for over 85 years.

Earlier this year, a survey titled Life Value Notes Life Freedom Index was conducted in 11 tier 1 and tier 2 cities to understand the current state of financial planning in urban India. The survey revealed that consumers are skeptical about the adequacy of their financial plans to meet their desired standard of living throughout their lifetime. In fact, only 13% of youth and women are extremely confident that they have adequate retirement planning in place. Though the wisdom investor segment (45 years and above) scored better in the level of confidence, their percentage stood at only 24%.

There are many reasons why planning for retirement is important like any other goals:

1.       Increase in life expectancy: Our generation will live longer than previous ones due to improved medical and healthcare, implying the need to gather enough funds that can sustain longer life. This also implies that the healthcare needs and expenses are likely to haunt us.

2.       Shortfall in Employer Funded Pension/Pension Funds : The employer or government funded pension schemes are less likely to sustain the income needs post retirement. The pension that one may receive from these schemes will not be sufficient to maintain the lifestyle. This is the reason many individuals worldwide supplement their state or employer funded retirement plans with self-funding- i.e. pension plans.

3.       Change of social structures: In spite of family support, many retirees don’t prefer depending on the relatives or children for meeting post retirement expenses. Maintaining independent lifestyle is sustainable only when backed with a financial cushion.

4.       Lack of social security system: There is no social security system in our country. Hence one has to plan to build the entire corpus to help meet the regular income or any contingency post retirement.

5.       Desire to remain contributor: The want to contribute to the family by providing and supporting the kids or grand kids at milestones of their life remains even after retirement is inevitable. Starting an independent venture is also an emerging trend. These can be fulfilled only when one is financially self-reliant.

6.       Rest and relaxation: After fulfilling all your responsibilities, you may want to build a retirement corpus to go on holidays, to pursue a hobby etc.

Keeping these key points in mind, it’s advisable to seek guidance from a financial planner for his expert views on your financial plan. Retirement is not just about age, it’s highly dependent on the kind of lifestyle you’re living and wish to continue living.