Retirement – the grey area after a long career. (And not just the hair) To some people it marks the beginning of a period of uncertainty, but to others, it's a time filled with possibility and imagination. With the economy being where it is today, many are working longer hours and retiring later in life. We wanted to take this time to further educate you on what you need to do to be prepared for retirement.
The thumb-rule says the best time to start thinking about and start planning for retirement is when one is least pressured about it – at the start of their work-life. From that early stage, whatever money (big or small amount) could be put away for retirement, would drastically increase many folds through compounding based on the time-value of money over the years. Also, to meet a planned financial goal 20 years down the line, one would need to put in the less as they start saving the earlier.
Say, one has a financial goal of saving $100,000 some 20 years down the line. If that person starts saving today, even without considering any interest component, a total of $5000 contribution per year, for every year till that preset timeline, would hit the target. But if that person waits another 10 years to reach the $100,000 in same time line, the yearly contribution shoots up to $10,000 per year for every year then. That is obviously a way more strain on one’s earning-consumption ratio. So, literally, Time Is Money!
Now consider that to meet the same financial goal, another person starts to invest those $5000 amounts every year in a retirement fund with a fixed 4% ROI compounded annually, for the next 20 years. The result is: $154,846 at the end of those 20 years! Now, fancy the extra benefits of higher ROIs and compounding frequencies offered by different investment schemes and retirement funds – the final output only grows bigger and bigger.
So, to grab the benefits at the most fruitful level, one must start at the earliest. But it is good to consider a few more things before starting execution of the actual plan for retirement too. One must be able to answer an honest YES too all 3 of the below questions consistently before starting to save for retirement:
It might be a more prudent and practical decision to hold off saving for retirement if someone couldn’t meet any of these requirements first.
There are two separate aspects of this preparation phase – financial preparation and mental preparation.
Below are a few key concepts to be considered for financial preparation:
This is perhaps the much less considered side of retirement. After a person retires from the job life, there seems to be an immediate void of activities in most cases. Also, the log-term bond of steady work-relations dissolve quickly, leaving one emotionally affected. So, it’s always better to think ahead and make a plan than to face the change abruptly. Figure out ways to spend time in retired life well before getting into that zone actually. Make plans for trips long-due, join local clubs, make new friends, maybe, establish a hobby to have some creative diversion. Staying positive in the late years of life adds to one’s strength – both mentally and physically.
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