Secure your future: The importance of retirement planning in India

When Prakash and his wife entered their mid-thirties last year, they decided to turn their focus towards retirement planning, concerned by the consistent rise in inflation and the cost of effective healthcare. Additionally, they had specific life goals in mind, such as travelling the world and creating a trust fund for their future grandchildren. Retirement planning is a critical aspect of financial planning, especially in India, where inflation and healthcare costs are rising rapidly. With longer life expectancies and soaring medical expenses, retirement planning has become a more complex process, requiring decisive and early action for maximum benefits.

Understanding the Challenges

One of the biggest challenges faced by retirees in India is the rising inflation rate, which currently stands at around 6%. Despite the Reserve Bank of India’s efforts to control inflation, the cost of living continues to rise, and retirees need to plan for higher expenses in the future. Add to it the challenge being posed by the spiralling cost of healthcare and the sticky rise in medical inflation. According to reports, medical inflation in India stood at around 14% as of 2021, with an anticipated additional increase of 10% this year. Therefore, retirees need to factor in the high costs of medical treatment in their retirement planning as they are more prone to medical issues and require more healthcare than the general population.

Retirement planning is not solely focussed on managing inflation and healthcare costs. As seen in the instance of Prakash and his wife, retirees must also consider their life goals and ensure that they have enough savings to meet these goals. Whether it's buying a house, funding your children's education, or taking vacations, you need to plan for these expenses in advance. Additionally, retirees need to have a stable financial plan that provides for their day-to-day expenses and any unexpected emergencies.

Strategies for Retirement Planning

Start Early: The first and most crucial strategy for retirement planning is to start early. The earlier you start saving, the more time your money has to grow, and the less you need to save each year. By starting early, you can also take advantage of the power of compound interest, which can help your savings grow faster. This is one of the biggest reasons behind Prakash’s decision to begin planning in his mid-thirties, as this enables him and his wife to leverage the remaining 25 years of their career efficiently.

Diversify: Another critical strategy for retirement planning is to diversify your investments. Investing in a mix of asset classes like stocks, bonds, and real estate can help spread your risk and maximise your returns. It's also important to invest in a mix of short-term and long-term investments to balance your portfolio. You can also pick from the variety of retirement plans available in India, including the National Pension Scheme (NPS), Public Provident Fund, retirement-focused mutual funds, etc.

Health Insurance: Given the high cost of healthcare in India, it's crucial to have adequate health insurance coverage. Retirees should consider investing in a comprehensive health insurance plan that covers both basic and critical illnesses. It's also important to check the terms and conditions of the plan, including the premium, deductible, and co-payments.

Seek Professional Advice: It is always a good idea to seek professional advice when it comes to retirement planning. A financial advisor can help you create a customised retirement plan that takes into account your unique financial situation and goals. They can also guide you through the various investment options available and help you make informed decisions.

Retirement planning can become complex and stressful if not approached carefully. However,much of this can be avoided by starting early, diversifying your investments, investing in retirement plans, focusing on health insurance, planning for life goals, and seeking professional advice. By following these strategies, retirees like Prakash and his wife can build a secure financial future. With the right strategy and careful planning, retirees can enjoy a comfortable retirement while pursuing their life goals.

Disclaimer: The article is authored by Ushaben Thakkar, Mutual Fund Distributor. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class.