Why Retirement Planning Is Important

Are you hoping to retire sometime soon?
Why retirement planning is important
Article Overview

If you want to ensure you maintain a good lifestyle in retirement, and want to continue to enjoy life after you have worked a lifetime, then it’s vital to plan for your retirement.

To help you succeed in your retirement goals, we have created these other articles that can help you.

Why Retirement Planning Is Important: 10 Reasons

1. To Be Financial Independent Post-retirement

This is one thing that can never be over emphasized. In retirement, it is easy to become a liability to your loved ones, especially when it comes to finances. Health can be understood because no one can control that. But when you do not have sufficient funds in your retirement savings, you become a liability to your family. This is one important reason why retirement planning is very important.

If you have effective financial planning, you would have grown your savings sufficiently during your active years and that is what will be your income post-retirement. You do not have to depend on your loved ones to achieve your post-retirement lifestyle. Your post-retirement lifestyle will have gone into your retirement planning, therefore you would have saved and invested enough to provide you with the funds for your desired post-retirement lifestyle. Financial independence is very important for retirees.  

2. To Fulfill Your Retirement Goals

We all have goals and we will still have goals when we retire. Goals are not only for the young. It is only easier for the young. The reason is that they are still active and can do what it takes to achieve that goal. However, for a retiree, it may be difficult because most goals require money and if at that point in your life, you do not have sufficient retirement savings, you may not be able to achieve your retirement goals. Retirement goals vary from person to person. It could be to buy a dream car, go on a dream vacation or buy a dream house. The truth is, if you do not have the cash, you cannot achieve the goal.

This is on importance of retirement planning. With a retirement plan that allows you to save and invest the funds in your retirement account, you can grow the funds and make them sufficient for post-retirement. That way, you will be financially independent and buy that dream car or boat that you have been eyeing years back.

3. To provide For Medical Emergencies

Post-retirement is an age where everything seems to be wrong with your health. It is almost inevitable because you are at that age where your body system is now fragile. What will make this period worse is if you do not have enough funds to cover health care during your post-retirement day. This is not negotiable when planning for your retirement. You must make room for medical expenses, at least to support whatever government benefit you are entitled to as a senior citizen.

4. To Hedge Against Inflation

This is another inevitable in your retirement years. The cost of living will not be the same as when you were actively working. It is important to factor it into your retirement planning. As the economy changes, the prices of goods and services also change with it. What is cheap today may be expensive by the time your retirement. This is why it is important to have a retirement plan. If not, you will just be walking in blind to the realities of post-retirement, thinking it’s business as usual. The retirement plan will help you account for the rising cost of living considering that you will stop earning regularly. It will help you save and invest your retirement funds in such a way that will cushion the effect of inflation during post-retirement.  

5. Unexpected or Early Retirement Won't Be Scary

There is this shock and fear that comes with having to retire early, either forced or voluntary. Especially for people without a retirement plan or those who started late. Retiring early could be for different reasons such as health issues and layoffs. It is for this reason that experts advise that you start your retirement planning as early as possible. A good retirement plan will prepare you for this and put your mind at ease because you have made provisions for life after retirement. You may not have attained the financial goal you set out to, but with a retirement plan, you can adjust and ease into life after ‘early retirement’.

6. To protect Your Property and Assets

During your active years, you may have bought some real estate, or some other form of property that has become valuable and you could probably sell for money. these are assets you should keep for as long as you can and not what you have to sell off to provide for your post-retirement cost of living. Without a retirement plan, you may be forced to liquidate your assets either to provide for yourself or your loved ones. A retirement plan goes a long way in preserving your properties and assets for as long as possible. You shouldn’t have to sell them to achieve your post-retirement lifestyle.

7. To Make Better Decisions

A retirement plan gives you a sense of purpose on how you want to handle your income and expenses before you retire. When you are saving towards something, you are inclined to cut off unnecessary spending to save enough for that purpose. A retirement plan gives you this power. You will have to make a budget for your monthly income and decide on how much you want to save every month for your retirement fund. This takes away the unwanted expenses from your budget. You will be better equipped with financial knowledge that will keep your finances in good shape. 

You can make better decisions when it comes to investments. Retirement planning is not all about saving. You also invest to grow your funds. With a plan, you can decide on which investments to put your money in to help grow enough funds that will sustain your post-retirement lifestyle. Financial decisions can be tricky because they have both short and long-term effects. A retirement plan ensures that you make smart financial decisions to achieve your retirement goals. You can ask questions such as How can I reduce taxes? When should I take social security? How can I maximize my employer benefits? And so many more important questions that help you plan your finances better.

8. To Enjoy Returns On Investments

Once you start saving for retirement, you also have the opportunity to invest what you have saved in portfolios that will grow your fund multiple folds. This way, you do not have to over-stretch your income to keep up with savings. Yes, you need to save, but the investment is a good way of augmenting your retirement fund. You get to reap the benefit of compounding effects on investment. Retirement planning allows you to sustain your retirement savings plan for a longer period with the returns on investments. This is another important reason why you should have a retirement plan.

9. To Transition Smoothly Into Retirement

Retirement is inevitable which makes it all the more a bitter pill to swallow because it has to happen. Transitioning may not be easy, especially if there is no support system. This is what a good retirement plan gives you. A retirement plan provides for your financial needs post-retirement. It makes the retirement pill easier to swallow. Whatever it is you have planned to do after retirement, be it travelling, owning a real estate, or taking a course, a retirement plan will ensure that you find the transition from active work life to achieving this plan. There is nothing as good as being financially independent, even when you are no longer actively working. That is what you get with a good retirement plan.

10. To Avoid Running Out Of Money After Retirement

This goes without saying. Retirement planning helps you secure your post-retirement lifestyle well enough to sustain you for the rest of your life. If you bank on liquidating your assets and the little savings you could gather before retiring, that may not be enough for you. If you consider inflation and healthcare, you may soon run out of money. A retirement plan includes savings and investments which help grow your savings into a sufficient amount that should last you throughout your life after retirement.

What Is The Most Important Factor In Retirement Planning?

A good retirement plan consists of different moving parts that make it work. All these aspects are equally important. If you are about creating a retirement plan, there are some important factors you must consider to make it work. Some of these factors include:

1. How Much Is Your Current Income

This is where the planning begins. Experts advise that you always start with making a budget of your current income and expenses to help you determine how much you can save monthly for your retirement plan. This will tell you how far you have to go to achieve your desired retirement savings goal. You should also try and include future salary raises and other sources of income.

2. What Are Your Retirement Lifestyle Goals

This is another important factor because it determines how much you have to have to save and invest that will be enough to sustain the lifestyle. While doing this, it is good to be realistic with your goals so as not to burden yourself. You do not want to set goals that will require aggressive savings and high-risk investments to be able to rack up sufficient funds.

3. When Do You Want To Retire

This will tell you how long you have to hit your target. How many active years do you have left that you can earn, save and invest to build a sufficient retirement fund? This is a very important factor in your retirement plan.

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Written by:

Jim Pan, CFP, MFA-P

Jim is a dedicated, fee and advice only independent Certified Financial Planner with a focus on supporting healthcare business owners during their crucial growth phase. His expertise lies in offering comprehensive solutions to minimize taxes while embracing a holistic approach. With a career spanning back to 2010, Jim has established a strong presence in the financial industry. He proudly holds a range of designations, including Certified Financial Planner (CFP), and Master Financial Advisor - Philanthropy (MFA-P). He is currently pursuing additional designations and qualifications to better serve his clients and community. Beyond his qualifications, Jim is a member and an esteemed participant in the Million Dollar Round Table (MDRT), an exclusive global association comprising the top 1% of financial advisors. Jim's commitment extends to the community, where he spearheads numerous charitable fundraising events and plays an active role in enhancing the well-being of others. Additionally, he has contributed significantly by serving on the board of the Canadian Mental Health Association in Vancouver. Currently, he volunteers with Junior Achievement of British Columbia (JABC) to present personal finance topics to youths.

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