What is Retirement Planning?

5paisa Research Team

Last Updated: 04 May, 2023 03:25 PM IST


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Retirement planning encompasses securing your future. You have achieved more than enough through the years dedicated to working and service. In retirement, you want to take time for yourself and rest. The benefits of retirement planning allow you to do so and more without worrying about finances.

Retirement planning means preparing for your future years right now so that you continue to meet all your goals and plans. It includes setting your retirement goals, estimating your needed money, and investing in growing your retirement savings.

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Understanding Retirement Planning

Retirement means the end of the fixed financial source. The planning ensures the preparation that one needs to have to live a happy and worry-free retired life. The planning also encompasses the lifestyle choice one will make after one retires.
A comprehensive plan includes a holistic approach to all the needs of life. It covers the non-financial plans of how one chooses to spend their time during retirement, the time they will take to quit working, and other factors.
At different stages of life, the emphasis on retirement plans differs. For young people, it means setting aside funds for retirement. For middle-aged people, it means having a specific income and taking the required steps to pay the savings out.
The benefits of retirement planning help you achieve the dreams and goals you have set aside for retirement. You have nurtured such dreams for years, and now that you have the time, you want to retire and enjoy all those dreams and goals. 
When you understand this concept better, you are better equipped to tackle all the post-retirement financial challenges that life throws you. You start planning at any point in your life, but it is advisable to start early. Starting at the early stage is convenient; you can change your retirement plan according to your evolving financial needs and goals.

Importance of Retirement Planning

The future is unpredictable, but a person can face it fearlessly with enough preparation. Therefore, it is very important to have foolproof retirement planning. Here are a few reasons why you need a retirement plan.

No One Can Work Their Whole Life

At some point, you will reach the age of retirement. The average age for people who retire from corporate and government agencies is 60. Various people take early retirement for various reasons- health, family issues, and more. In such times, you will need a steady source of income. That is where retirement plans come into play.

Enjoying Retirement Is Necessary

Other than a steady income source to sustain themselves, people who have worked in their prime years deserve to enjoy retirement. You can visit places on your travel buck list to invest in a house or other plans. To pursue the hobby of your choice, you would need the necessary funds.

The retirement plans will help you to achieve all of this. The planning will ensure no stress on your savings or the retirement amount you receive. It allows you to spend money on things you want without financial strain.

Reasons to Plan for Your Retirement

If you have yet to envision your retirement, you must hurry up. You need a solid retirement plan for a comfortable and stress-free retirement. The retirement plan example that you want is to comfortably live in your house without any financial woes or worries. If you still need convincing, here are a few reasons.

1.    Increasing Average Life Expectancy

The main reason one should kickstart their retirement plan is that people now live longer on average. If someone is living a long life, then it means they will need adequate funds to sustain themselves. You will need a substantial sum of money to pay for the needs of your life.

2.    Check Things Off Your Bucket List

Do you also have a bucket list you want to make true? What better way to turn it into a reality other than your retirement years? Retirement gives you ample time to achieve everything you could not do in work years.
A great advantage of retirement plans is living in the moment. You can spend your free time in your leisure. Be carefree and stress-free with a good retirement plan. Otherwise, you can miss out on enjoying a few experiences and leave out quite a few things on your bucket list. Surely, you do not want that. Therefore, it is imperative to have a strong retirement plan that helps you to achieve such goals.

3.    Avoid Financial Obstacles in The Future

Financial hardships can become a reality in the future. The future is uncertain, and the retirement plan can save you from trouble later. It will help you to sort out the funding.
To have an optimistic financial feature, one must follow the proper rules of retirement planning. It will ensure that you live the coming years comfortably. There may arise some future issues where there are some financial issues. In such cases, retirement plans will save you from financial trouble. You can have enough preparation to deal with the problems. 

How Much Do You Need to Retire?

There are many plans to avail of two services, PF and SIP. The Employee's Provident Fund or EPF allows 12% of donations from the employer regarding the employee's salary. People can withdraw the EPF as a lump sum after they retire.
Another plan is the SIP. The plan instils financial discipline, allowing people to build a corpus systematically. With these plans, they can save enough money and create a plan to live a worry-free retirement life. The minimum SIP investment is ₹ 500 a month.

Steps to Retirement Planning

Retirement planning is not a sudden decision. It requires meticulous planning and various steps to ascertain financial security in the future. One must consider many factors to enjoy a smooth and comfortable retired life. Here are the steps you must follow:

Start Investing Early

The best way to make your retirement hassle-free is to start investing early. Avoid waiting to start saving money. Not saving enough time can make it impossible to catch up later.

Have An Emergency Fund

An emergency fund is one of the best ways to ensure an emergency fund. Whether it is a job loss or a medical emergency, unexpected financial expenses do not come with a warning. Having an emergency fund does not overwhelm you with sudden expenses.

Have An Expenses Account

Keep a separate expense account for all your expenses after retirement. It will not allow you to dip into your savings or other funds account, thus saving you money.

Know Your Retirement Needs

However, the rules of retirement planning for the retired life are only sometimes about money and investment. The first thing you need to do is figure out your monthly and annual expenses. You also need to set aside money for emergency expenses and recreational expenses. Invest and plan accordingly to achieve your financial goals. 

Retirement Plans

There are two ways one can invest for their retirement plans. One is the stock market, and the second is mutual funds. Each offers a set of benefits for retirement planning. Let's analyse the pros of investing in mutual funds and the stock market.

Invest In Mutual Funds

Mutual funds offer a source to afford all the regular necessities. Additionally, they carry comparatively fewer risks and are ideal as they allow secured returns for retired personnel. Mutual funds also offer various plans from which customers can choose any pension fund. These funds will help them to meet their financial needs.

Invest In Stock Market

The next option is to invest in the stock market. One thing about the stock market is that you must expect volatility. Even with its volatile nature, the dividends increase over time as they keep up with inflation.
Inflation affects the dividends as it continues to rise and sometimes even exceed the inflation rate. It means your investment in the retirement planning process will remain safe, and you will receive good returns on it. If you plan to support yourself in retirement through dividends, rejoice that your buying power will not shrink.

Employer-Sponsored Plans

Employers offer a wide variety of retirement planning across various categories to secure the retirement future of their employees. Here are a few of the plans:


What Is It?


401(k) Plans

It is a corporate pension plan that the employer provides to the employee.

I.       Exclusion on paying taxes on initial investment returns.

II.     The part of their salary that they offer is exempt from taxable income.

Pooled Employer Plans

It takes the administrative burden off the employer's hands. Employers delegate their fiduciary role to a third party.

       I.          Pool assets into a single plan

     II.          Streamline administrative costs

    III.          Secure the benefits of economies of scale

IRA Plans

It is a tax-advantageous retirement plan that allows saving of money towards retirement

       I.          Popular investment plan for retirement

     II.          Allows purchasing of an uncountable number of investments


Same as IRA but for self-employed people

Have higher contribution limits in comparison to IRA

Employee Stock Ownership Plans

Employers make a retirement benefit plan for the employees

Employers can reward hard work through an equity

457 Plans

Retirement savings with tax advantage for government employees

·        Tax-free withdrawals

·        Choose among various asset classes

403(b) Plans

a.k.a. Tax-sheltered annuity in public schools

Employers can save for retirement by contributing to the account of the employees


Traditional Individual Retirement Account (IRA)

The traditional retirement account helps to save money. Individuals can direct their pre-tax income toward their investments. It helps in the growth of these investments. The tax rates of IRA are based on what is retirement planning process. Account holders must abide by the limits.
The traditional plan reduces your taxable income by the amount you contribute. Let's say you contribute 10,000 INR; then 10,000 INR less of your income will become taxable.

Roth Individual Retirement Account (IRA)

This retirement plan example contributions to IRA are not deductible by the tax. One must refrain from gaining tax deductions from these. However, they can receive tax-free investment gains at retirement. Your withdrawals are income-tax-free, ensuring you have more money for your expenses.

SIMPLE Individual Retirement Account (IRA)

Both self-employed and organisation or company employees can opt for this plan. The tax deductions are applicable, and employees' contributions depend on their eligibility. Small businesses with at least 100 or less than 100 employees can qualify for this retirement planning. The employers receive a tax deduction for the money they contribute to their employees. 

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Frequently Asked Questions

Know where you are financially and set realistic goals for retirement planning. Start investing in plans with minimal amounts. Grow your assets and go for bigger investments. Automate your finances and settle on a retirement plan.

Both are equally important. It is best to have some retirement savings set apart. Also, keep an emergency fund in times of need. It will help you to save money and not dip into your savings or recurrent account.

SIMPLE Individual Retirement Account is the best for self-employed people as the setup and maintenance are low.

If the person expires, their legally elected nominee can withdraw the money from their retirement planning account.