At any age, leading up to retirement, that is likely your biggest objective: to know, first, how much will needed and second, to save towards that. Most invaluable in doing that are the retirement calculators and retirement plans. Thus, they bring out some level of definition and direction hence ensuring you go about the challenging world of retirement planning self-assuredly.
Retirement plans are set to give one ample time to accumulate savings over time one has been working; and in the long run, this is converted to give one a steady flow income when he is retiring. The two general kinds of retirement plans are:
· Pension Funds: This is an investment-driven option in which you systematically save money over the years. The basic idea is that at a fixed point in time, you have a corpus that keeps earning you a regular income, or for want of a better word, a pension. It plays a very important role in India, where social security schemes are weak and relatively nebulous, ensuring funds’ safety post-retirement and guaranteeing that inflation doesn’t eat into the value of the money.
· Annuity Plans: These are retirement plans that assure one of receiving a regular income throughout the rest of their life, with retirement already done. This plan contains an ‘accumulation phase’, which is a phase in which regular sums of money are put into it. On retirement, one can buy an annuity that will secure a regular income. There are two major types of annuity plans: Annuity Immediate Annuity which attaches to start paying out on purchase, is most appropriate for those who are retired and who have the lump capital they intend to invest. Deferred Annuity It is generated by deposit during the accumulation period, funds contributed periodically and that accumulate into an investment, thereafter an option paying is deferred to a later date.
Importance of Planning for Retirement
To say the least, retirement planning is more than just cutting spending but about making it realistic that one would live their expected kind of life. Discussed below are major reasons why proper and functional retirement planning is necessary.
· Financial Independence: Retirement plans ensure that upon retirement, a person gets a reliable source of income and can remain self-reliant, not fully dependent on anybody, be it family members or any other kind of support.
· Protection against inflation: Your savings corpus can get eaten away with time due to inflation. If you invest timely and judiciously, then you build up an adequate corpus for retirement, which can match inflation, so your standard of living is not compromised.
· Security: Lead your retirement life with a confident outlook on the future, for you are financially secure and stable. You might work on the various hobbies that you are interested in without being bugged by financial issues. And also it gives peace of mind to have a secure future, as it is always uncertain.
Importance of a Retirement Calculator
A retirement calculator is one of the most powerful tools to define how much you need to live on in retirement and how much you need to put away to achieve your retirement target. Here’s how one can help:
· Estimate Future Needs: A retirement calculator will need details of one’s current age, expected age of retirement, life expectancy, and current savings before it would be able to calculate the money one would need after retirement. It will consider the current inflation as well as the return on the investments expected, hence giving a clear realistic picture of what would your financial requirements be.
· Savings Goals: Project realistic goals for saving, factoring in estimated retirement expenses. It will calculate how much needs to be saved per month and into what type of supplemental retirement account or investment to meet your financial goal.
· Estimate the retirement income: Summing income from all probable income sources, be it from a pension, an annuity, or Social Security. It will help in understanding one’s anticipation of income from any source and prepare accordingly.
· Accurately Accounts for Inflation and Returns: A nice retirement calculator accounts for both inflation and the ‘Supposed Interest’ rate on investment, making sure that the retirement plan will never become ineffective with time.
How to Use a Retirement Calculator
A retirement calculator will work when you input some of the most basic details, after which it gives you an estimated future need and savings requirement. The following steps give one a picture of how the calculator works.
· Entering the Current Details: The current age, planning after which to retire, life expectancy, and monthly income required after retirement need to be entered. Also, you have to select the inflation rate expected and the rate of return on the investments.
· Calculating the Future Value (FV): The future value is calculated as being the present value multiplied by the factor of 1+ rate of interest or growth rate raised to the power of n which is the number of years. Below is the formula for future value.
Using the formula FV=PV× (1+r) ^ n where:
PV = Present Value (monthly income required)
r = Inflation rate
n = Number of years to retirement
· Calculate Retirement Corpus: Using the retirement corpus formula and considering the return one would like to get and the period one would like to remain retired to arrive at the corpus that needs to be built. One can find their corpus by changing the values of inputs.
Conclusion
The years of retirement should come with the years of strategic planning. It is at this point that a retirement plan and retirement calculators could just be doing more than anyone needed for that period of comfortable and secure retirement ordering. Soon you will learn how to save and invest, thus getting prepared to live your golden years without a worry about that dollar. Try out these financial tools today to secure your future that will not only secure today but be able to sustain your lifestyle for several years.
