Why do we need Retirement Plan
Why do we need Retirement Plan ? Although Retirement may seem to be a far-fetched incident, the earlier you start “Planning” for it, the better it is. As is said, “If you Fail to Plan, then you Plan to Fail”. And to avoid that, the best and the easiest thing to do is to Plan. And the most important Plan that each and every individual must have is Retirement Planning, from the first day of earning. The Max Neilson report says that according to the research team of AEGON Retirement Readiness Index (ARRI) for their global survey, only 18% of the so called urban internet savvy population of the world has a proper retirement plan which is well chalked out. Indians having the highest Marginal Propensity to Save, are concerned about Retirement but have not Planned it yet! In fact 42% of the Indians are not even sure what they will do if they are unable to work till their planned retirement age. Thus rises the importance of Retirement Planning, one of the most important steps for Financial Planning too.
RETIREMENT – a word that evokes mixed responses from different individuals. While for some, it brings a sour taste in the mouth, for others it is a blessing. Most of us do not even think about retirement planning when in the prime of our life, working and earning being all that requires our focus and energy. For those who are nearing that crucial age, retirement is all they think about and how will they rest their tired bodies post gaining freedom from work. But here we will talk about the younger and middle aged population, who constitute a major part of our employed demography and for whom retirement is a distant call. How many of them have planned for their retirement? A survey revealed that about 78% of them haven’t. It was not shocking actually because my intense research into the topic of insurance education of the general population often brought me face to face with the lack of financial awareness among the common population, retirement planning being one of them.
Among many topics, retirement planning was a frequent mention because most of us view it as a very distant possibility. In the prime of our life, i.e. the ages of 25-45, we are more focused towards career growth and wealth accumulation. As such, retirement planning is either ignored or not acknowledged at all. Here are 5 commonly argued reasons why people are not ready to plan for their retirement:
I’m way too young to think about retirement.
Okay, so not only females hide their ages, males too hide behind their age when arguing about not having a retirement plan. In the late 20s or early 30s, we often shirk away from a sound retirement plan simply because we think it’s too early for that. Who will plan retirement when planning for a house or a dream car or vacation is the nearest requirement? So the common sentiment is – plan when you near the retirement age or sometime in the early 50s.
I’ll keep working even after retirement
This can be made applicable for self-employed individuals or people in their family business. They tend to stretch their working age till the golden years and even beyond that. But what if your health does not allow you to work even at your own business? Can you guarantee to work till your ripe golden age? Even working professionals think of starting up a small business after retirement to continue the inflow of income but can the success be granted? Who will provide for the start-up capital?
The new lifelong renewal health plans will take care of my medical needs.
Yes, with the lifelong renewability clause in health plans, covering medical emergencies in the old age becomes easier. However, a point to check – you need to pay regular premiums (which will be very high in the old age) to continue your cover. Moreover, you would need an exhaustive cover to provide for most of the ailments suffered in old age and for certain critical illnesses, your standalone health plan might not be sufficient.
My PPF will take care of my retirement expenses.
PPF is a boon for employed individuals as it makes forced savings for retirement planning. But if you think it is enough, think again. With inflation behaving like a demon, your PPF savings might not fulfill your financial needs. Even self-employed individuals who think that a pension plan is enough in their retirement planning process are highly mistaken. Expenses after retirement seem a burden when there is no steady source of income. Your restricted PPF corpus or pension will not allow you to buy that comfortable rocking chair as it will blow a hole in your retirement corpus.
My children will provide for me
If you still reflect this sentiment, you need to watch the hit Hindi movie “Baghban”. If the Amitabh Bachchan starrer teaches anything, it is that your own children may consider you a burden when asked to take care of your basic lifestyle needs when you stop working. Though it was a bit extreme in its character portrayal, the movie does enlighten one about the need of a sound retirement plan so that you don’t have to depend on your child(ren).
All said, it is always prudent to start retirement planning at a young age. Even at the start of your career when your paycheck is low, a bit towards future planning will yield a corpus which will sufficiently provide a sound financial base. So while you spend your working time toiling hard to earn, go take that much awaited vacation with your loved ones post-retirement and enjoy those golden years of life tension-free.
Disclaimer: The opinions expressed in this blog are the author’s own and do not reflect the views of Paisabazaar.com. Paisabazaar.com does not assume any responsibility or liability for the same.