Step-By-Step Guide to Efficient Retirement Planning

8 min read • Updated 11 May 2023
Written by Team Wint Wealth
Step-By-Step Approach To Retirement Planning

The basic approach to retirement planning has not changed much over the years. You work, earn, save and retire. This plan seems to be working just fine, but there is always some room for improvement. This step-by-step retirement planning guide will take you through how you can plan to live your golden years tension free. 

Why Do You Need to Plan Your Retirement? 

During your employment, you have a regular income, which makes spending and saving easier. But once you retire, the biggest difference in your life would be that there will be no active source of income. Hence, it would help if you had the right financial plan to maintain a healthy lifestyle and pursue your hobbies and goals during your retirement. 

Moreover, with the right mode of planning and savings, you will be well prepared to tackle any emergency or shortfall, even without any active income source. 

Here are some primary reasons why you need to plan for your retirement: 

  • Everyday expenses 

Life does not stop after retirement. As we grow older, our expenses tend to rise further.  Hence, having no active source of earning can really tarnish your daily life. Yes, you will get your gratuity and PF, but those may not suffice as you don’t know if you will be living till your 70s or 90s. Also, expenses to be incurred in the post-retirement life are not always set in stone; there might be sudden emergencies from all directions. 

This is why you need to plan your retirement wisely so that your daily living does not become a nightmare and you can wake up each day without any stress. 

  • Medical expenses 

Ageing invites a lot of health issues and medical contingencies, and with the development of medical equipment and technology, the treatment expenses can burn a hole in your pocket. Of course, having health insurance is wise, but you cannot rely on that completely as you retire. Hence, your retirement fund should be enough to cover any medical expenses for you and your dependent ones if necessary. 

  • Emergencies 

Life, as we know, can show up with unpredictable circumstances. Of course, we might take precautions and try to stay prepared, but it might not suffice at times, especially when we do not have any regular source of income. Therefore, good retirement planning will help you manage such situations in an efficient way. 

  • Inflation 

Inflation is when the prices of goods and services are on the rise, and it adversely affects the value of money. Inflation has been on the rise for quite some time now, and by the time you retire, it will be much higher. This continuous rise indicates that you only have to pay more for everything in future. Without taking inflation into consideration, it might be difficult for you to fulfil your retirement goals. 

  • Retirement goals 

Your retirement goals can be pursuing your hobby, investing into a new venture or exploring the world. However, if you do not plan accordingly, your dreams might not turn into reality. Living your life during your retirement as you used to during your employment is not a life a lot of people opt for. 

A lot of people may set out to travel or start a business. Basically many would set out to pursue things they’ve wanted to always do while many would lead a life of comfort and relaxation. Hence, having a goal is key and then working out a plan to fulfil those goals is the way to go about it.

Step-By-Step Approach to Retirement Planning

Post-retirement, the life we look forward to is the life of comfort. Retirement planning is of utmost importance if we want to achieve something that we dream of. But, you need to approach this plan in a systematic manner. Go through the following step-by-step guide to plan your retirement effectively: 

Step 1: Determine your retirement age

The ideal age for retirement is 60. But some plan to retire early or take voluntary retirement due to one reason or another. Knowing when you will retire will give a timeframe to prepare for your retirement. For example, suppose you start earning at the age of 23, and you plan to retire by 55. So, you have exactly (55-23) = 32 years to plan your retirement. Knowing this exact figure will help you plan more efficiently and effectively. 

You have to remember that post-retirement, your active income source will cease to exist, either fully or partially (if you are eligible for a pension). 

Step 2: Start early 

For most of us, when we start earning in our 20s, planning for retirement might seem like a little too much. But early investing comes with benefits, and planning early will also lessen your burden. Saving will not seem like an extra headache for you once you grow older. The best way to do this is to increase your investment as your income increases. This will evenly split the amount between expenses and investments so that you do not need to compromise, neither now nor in future. 

Step 3: Evaluate your retirement fund 

By now, you have already planned how much time you require and when to start. But you still have to figure out how much money you will need to save. To start, first, assess your current expenses. Include everything and make it as accurate as possible. 

After that, if there is anything to minus, cross it off the list of future expenses. This can be a loan or a near-future expense that you are saving for. Next, you have to add a probable inflation hike. Finally, you will reach a figure which you will require to live a life uninterrupted by retirement. 

Step 4: Assess the future value of your investments 

Investment or savings are important aspects of financial planning, but you should evaluate whether these savings will be of significant use to you or not. You need to assess the future value of your investments by checking your rate of return on investments. 

For example, suppose you decide to invest Rs. 50,000 annually in a retirement scheme, and that plan will offer you a 10% return per annum. Hence, in 32 years, you will accumulate Rs. 57.12 lakh when you are 55 years of age. If you think this will  be enough for your retirement years owing to the rise in inflation, you need to reconsider your investment strategy. 

Step 5: Reconsider your expenses 

After you have assessed the future return of your savings, you will know if you have to make adjustments or not. For example, you might consider cutting down on unnecessary expenses and leisure expenditures. Differentiating between your needs and wants should be the first step. 

Step 6: Build an ideal asset allocation portfolio

Your investment instruments do not have to be mainstream. Everyone has different financial goals and risk appetites. 

For example, equity investments offer an excellent rate of return for investors with long-term horizons, but fixed income or debt investments will earn a regular income. Debt also has a lower risk meter than equity. Hence, you should invest as per your risk appetite. 

Also, diversifying and reallocating your investments is a good idea to generate an optimum return. 

Step 7: Keep your portfolio in check 

Building a plan and investing is not enough. You need to keep track and make changes whenever and wherever necessary. For example, suppose you have invested in an equity fund, and your fund is not performing well. In such cases, you might consider reallocating your asset to a debt fund where there is a lower chance of incurring losses, or you can simply change your fund. 

Things to Consider while Planning Your Retirement 

Here are some points to keep in mind while planning your retirement: 

  • Pay off all your debts before you retire. Retiring with liabilities might not be a good idea as you will not be actively earning anymore. 
  • Create a budget for your everyday expenses. You have to put some amount aside for savings. Plan to include the savings amount in your budget, which is as essential as your daily expenses. 
  • Having an emergency fund is key. An emergency fund comprises of 6 months of. You might require the fund for unexpected events such as a sudden medical emergency or some other unpredictable event. Usually, this should be equal to your three to six months’ salary. This will help you manage unexpected circumstances without spending your investment.  

Final Word 

Financial planning for retirement is an extensive task and can get exhausting. However, you can take assistance from a financial planner to guide you through the process. Set up your retirement planning guide to enjoy a stress-free retirement. 

Frequently Asked Questions

What are some good ways to increase your net worth?

Building net worth is one important aspect of retirement planning. Some good ways to build your net worth are buying properties, earning a higher salary, paying off your debts and purchasing insurance plans.

What factors determine your retirement fund?

Every individual has a unique lifestyle and habits. This is why a retirement fund varies for everyone. However, some common factors determine the value of your retirement fund, which are lifestyle & habits, retirement goals, liabilities, retirement age and any other commitments you need to fulfil.

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