Pre And Post-Retirement Efforts
The process of retirement planning is not a one-time or even a one-step process that is completed in a short period of time. The process has to be performed over a long period of time, which will often last an entire lifetime. The process also has to be continuous so as to ensure that the goals of the individual are achieved. A lot of changes and corrections will have to be undertaken in the course of retirement planning. Efforts have to be made both at the pre-retirement and post-retirement levels.
The first question that arises is when is the right time for a person to start their retirement planning. Most people say they will wait till they are a bit older and in their mid to late thirties. Many believe that in the early stages of life it is important to focus attention on several other needs. There is no correct time for a person to start the retirement planning process. One can do it anytime and the earlier this is started the better it is for the person because it gives them more time in order to achieve their various goals.
A smaller amount invested earlier in life will still give a larger benefit because of the power of compounding than some amount invested at a later point in life. This means that the pre-retirement efforts should start as early as possible to give the individual adequate time to achieve the targets.
Determine Your Retirement Income Needs
Before going into the process there are a few points that one has to be clear about. Determining and calculating how much money you will need in order to ensure that the retirement targets are met is key. Different people quote different figures as the requirement but the general consensus is that at least 60-70% of your pre-retirement income is necessary to enable you to maintain your standard of living.
Another way of undertaking this process is by using the expense route. The existing expenses can be the starting point and one can plan how this will change in the future. This is a difficult task, as one has to look far out in the distance and then make the estimation. A dangerous thing here is that the expenses may change dramatically by the time you retire which can throw the calculations awry.
The closer one is to the retirement time the better the chance of estimating the position correctly. If the gap is small then it would be easily achievable. When you start planning early, inflation comes into play. Inflation will mean that on one side, your expenses will keep rising and this will require a higher income to sustain it at the same time it will also impact the earnings rate on the amount saved one way or the other.
Calculate The Gap
After the retirement income needs have been calculated the next step is to take a look at the estimated future income that will go on to meet the needs. This is a very crucial part of the process because if the calculations show that the future income will fall short of the needs then the gap will have to be filled from some other sources.
The right calculation of the gap is essential for an individual, as it will help him plan effectively on how to bridge the shortfall. This is what retirement planning is all about. Several of the targets in this process are long-term.
The retirement planning process does not end at the time of retirement. A lot needs to be done in the post-retirement period. One will get a clear idea of the efficiency of the retirement plan during this period. Since retirement brings a void into people’s lives, many tend to ignore the act of ensuring that there are enough funds available for retirement.
This is also the time when one can ensure that they are able to do what they have always dreamt of doing in their life. Such free time, which was never available earlier, can be used to ensure that there is a sense of satisfaction in life. Some old age activities can also result in the generation of some income. One thing a lot of people do in such a situation is to take a hobby and expend all their energy on it. This breaks the monotony keeping the person occupied for long periods of time. This is a good way to ensure that the person is able to concentrate on some area. While the leisure time is spent usefully for the retiree, they also get satisfaction if this activity is of some utility to the society.