The plan and action of accumulating a certain corpus by the time you reach retirement age is known as retirement planning. It is a plan for living the life you have dreamed of during your silver years. Essentially, this means planning for a steady source of income for yourself once you retire from your active career.

Why should you plan for retirement?

Planning for retirement is a very important financial decision you should make if you want to live a stress-free, independent life when your steady income from your job or work stops.

Your expenses today will not be the same when you retire, as inflation and the rising cost of living will cause expenses to grow. Therefore, your plan must not only save for retirement but also invest in such a way that it accounts for the future cost of living. To do this, you need to start planning for retirement as soon as possible, even if retirement seems like a distant event.

Steps of retirement planning

Step 1:The first step in planning your retirement is to decide what kind of life you envision for yourself. Do you want to live a quiet life in the countryside, growing your own vegetables, or would you prefer to live in a community with like-minded people? Would you like to spend your time reading books or traveling the world? The lifestyle you choose will determine how much money you need to save to support those aspirations.

Step 2:The next step is to take stock of your assets. The value of your existing assets will contribute to your retirement corpus. The rest of the corpus will need to be built over the time you have left until retirement.

Step 3: A very important consideration while planning for your retirement is to assess how much time you have left until retirement. As a rule of thumb, the longer you have to invest, the larger the corpus you can build, bringing you closer to your dream life. Your investments should be planned based on the time remaining until retirement as well as your risk appetite.

Step 4: The next step is to plan the investment avenues that can help you reach your goals. You can choose from a variety of options such as ETFs, NPS, or mutual funds, which may offer the growth potential of equity or the stability of debt. Additionally, you may consider investing in some good stocks for potentially higher returns.

Financial planning is the process of evaluating your current financial situation, setting specific financial goals, and developing a strategy to achieve those goals. It involves assessing your income, expenses, assets, and liabilities, and then creating a comprehensive plan to manage your finances effectively.