5 Questions To Ask To Know If You Are Saving Enough For Retirement
Posted on Tuesday, March 20th, 2018 | By IndusInd Bank
In a world of instant gratification, with an increasing trend towards credit purchases, the importance of saving money must not be lost. In a scenario where our monthly salaries are spent in repaying credit card bills and EMIs, savings tend to take the back seat, which is harmful to the prospect of financial security in the future.
It is very important to take control of your finances and save money for when it is actually required, instead of spending it on non-essential requirements. Not only is it prudent to set aside money in order to have sufficient funds to fall back on in case of an emergency, having financial security when you stop working is of utmost importance. You must take appropriate steps as early as possible to ensure that you enjoy the golden years of your life to the fullest and are comfortable in retirement.
While a happy and stress-free life after years of hard work is what everyone wants, a proper plan is required to make this a reality. You must start saving and allowing your money to grow sufficiently to meet your financial needs in the future. Not only must you have a retirement fund, but it is also important for you to plan your finances such that that fund has enough money to meet the requirements of the time when you will retire. Even if you have started saving and have a plan, you must review it to know whether the amount of wealth you are creating for retirement will be enough to sustain a comfortable life in the future. To understand whether you are saving enough money for your retirement, you just need to ask yourself these simple questions –
Have I Planned My Future?
Unless you have a realistic plan for your future, it is difficult to work towards it. Everyone has different dreams and expectations from life, and you have to know what you want in order to achieve it. Once you have an idea of the kind of retirement you want, when you want to retire and the things you want to do after that, you could start setting aside money to achieve those goals. You must factor a realistic retirement age and project a probable lifespan in order to work towards setting aside your retirement fund accurately. Lifestyle expenses and monthly expenditures that come along with the kind of retirement you choose must also be factored in carefully. Estimating post-retirement expenses is the most important step in financial planning.
Have I Already Started Saving?
The ability to save money is a skill which must be developed from an early age so that you can optimize your resources and provide for the best possible future. Living from one paycheque to the other could get you into a lot of trouble in the future. Ideally, one should start saving from the first day of work, but in case you have not, it is never too late to change your lifestyle and work towards securing your future. Though it is easier said than done, cutting down on unnecessary expenses, setting aside extra earnings and staying clear of incurring debts as much as possible would assure greater savings. To be able to reduce expenses and allocate more resources towards savings, planning and budgeting are a must. Though planning may seem tedious, a little effort and a time investment of a few days could help you identify the flow of your money, your spending patterns and in turn facilitate the plugging of unnecessary expenditure. If you stick to the plan and maintain a budget, there will be a marked growth in your savings. By investing this money sensibly and paying off dues at the earliest opportunities, you could be able to build sufficient resources for the retirement fund.
Have I Kept Inflation Rates in Mind?
You must keep in mind the rate of inflation while calculating your expenses post-retirement. It is much more prudent to assume a high rate of inflation and be cautious than to assume a low rate and get into trouble in the future. So when you calculate the value of your savings, by assuming approximately 8% CAGR you should be on the safe side. If the inflation is lower than the rate you based your plans on, the more you have as savings in the future.
Where Should I Invest My Savings?
When it comes to investments, a balance between risk-free investment schemes and opportunities with a scope to maximize your returns is usually a sound way to go. While the latter requires enhanced knowledge, and understanding of the functioning of the money market, the former is a much more secure option for you to trust your money with. The most prominent among these schemes are fixed deposits (FDs). FDs are a simple and safe solution for you to invest a certain amount of capital over a few years and earn an assured income through the interest it generates. This is the ideal way to set aside funds and create wealth to achieve long-term financial goals. If you do not have much concerning savings and are looking to make smaller deposits over a period, recurring deposits (RDs) could be more beneficial to you. This scheme requires you to make regular payments in monthly instalments over a certain period and attracts an interest at a rate determined by the monthly remittance and duration of the scheme. Just like FDs, RDs are also a safe investment option with guaranteed returns.
Additionally, it is important to make slightly risky investments where you place a part of your savings to grow at a better rate and help beat inflation. A profile which allocates money towards equity shares along with safe investment is likely to benefit you in the long run.
Do I Need To Consult An Expert?
It is always advisable to seek the assistance of a professional who is in a position to help you plan your savings or just to give you a better understanding of the investment tools in the market which suit you best. You could always do your own research, take tips from others and chalk out a plan, but consulting an expert for such an important aspect of life might not be a bad idea.