Right Age for Retirement Planning and How to Go About It

"How I wish I could retire early!"

"I am thinking of retiring at 50 and pursue arts as a hobby!"

"I am done with the corporate life; I think I'll move to a farmhouse and retire to a quiet, peaceful life."

How often have you heard or used these or similar expressions?

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In conversations with friends, family, and close colleagues, the subject of retirement is sure to spring up sometime. The stress of an ever-demanding work culture and a distorted work-life balance has forced today's generation to ponder retirement much earlier than prior ones. Recall, however, such conversations, and you'll notice that the words we use are "wish" and "think," and not "plan," which means these talks end up being more of retirement dreams than retirement planning. 

How critical is retirement planning?

Retirement is as crucial an event in our life as others such as education, marriage, and raising children. The life expectancy of humans is increasing at a fast rate, owing to better medical care, improved health and hygiene standards, and more food availability. This means that while our ancestors in 1950 were, on average, living till the age of 77, life expectancy rose by about 10 years to age 87 in 2010. Add the 10 extra years of old age to our desire of retiring about 10 years earlier - maybe around the age of 50 - and you're looking at a good 20 extra years of retired life and almost 30-40 years without being on job, without an income. This number is probably more than the number of years you were on job.

Sounds scary, right?

Which means retirement needs meticulous planning.

If you're looking to retire only from work and not from life, if you want that retirement shouldn't mean just "needs" but "comforts" and "luxuries" too, if the frightening thought of cost-of-living increases 30-40 years down the line has come across your mind, retirement planning should be your No. 1 life objective. Unfortunately, research shows that people usually place retirement planning as the last financial goal and most people don't even consider it as a key event to plan for.

What is the Right Age for Retirement Planning?

In an ideal world, the day you start saving is when you should start investing in retirement, and that day is when you start earning, because your savings should go hand in hand with your earnings from Day 1. If you wait to save for when you earn "a little more," the savings day might never come, since your expenses are likely to escalate in proportion to the earnings.

To put a number to it, even if you consider the traditional retirement age of 60, your 30s are a perfect age to begin investing a small amount regularly in a retirement or pension plan to avail the benefits of compounding interest and creating a corpus or steady income in your retirement days. Compound interest helps in increasing your wealth faster since it is calculated not only on the principal but also on the interest earned "over time." The earlier you start, the more is this "time," and the more you benefit from compound interest.

How to go about retirement planning?

Consider the following steps for planning your retirement:

1. Decide your retirement age: Whether you want to retire at 60 or earlier will affect how much you need to invest. The further you are to your desired retirement age, the smaller the investments required since compounding interest will make your money grow faster.
2. Post-retirement lifestyle: Leading a simple, relaxed life may require less spending. On the other hand, if you wish to start a venture tomorrow, it will need more savings today.
3. Emergencies: Old age comes with health ailments and medical emergencies. Factor in such financial burdens while planning for retirement.
4. Calculate total retirement expenses: Total your yearly cost of living, travel costs and emergency expenses and multiply with the number of retired years (20, 25, or 30 years depending on when you want to retire). Add to this one-off expenses such as children's education fee and possible venture costs, etc., factor in inflation and you've arrived at an estimated total required to lead your retired life.
5. Start investing early: For a retirement corpus of let's say Rs. 1 crore, if you start at the age of 30, the investment required will be substantially lesser than what you'd have to invest at age 40 or later. The compounding interest you earn will also be much higher over a longer tenure when you start early.
6. Choose a retirement plan: Finally, select a retirement plan and start investing systematically. HDFC Life Systematic Retirement Plan is one of the most suitable plans available in the market for those preparing for retirement. It offers a limited premium paying term for systematic premium payments, with the option of deferring annuity payouts by choosing the Deferment Period. You get guaranteed income your entire life, with the choice of receiving annuity monthly, quarterly, half-yearly, or yearly, along with return of total premiums paid in case of death.

In conclusion, how comfortable and worry-free your retired life will be, will likely depend on how early you begin retirement planning. A timely investment might just be the difference between your retirement dreams and them coming true!