What is retirement? If go with dictionary definition, it is that phase of life where an individual stops working/employment completely. According to us it is the best phase of life where an individual is now free to enjoy his/her life and live it to the fullest. One does not have to slog through the same old monotonous office life. It is the when a person can do what he/she loves to. And to fulfil all these one needs have a strong retirement plan, which can be created with help of pension calculator.
Pension calculator a tool which you get an estimate of how much income you will need when you retire. It helps you calculate the retirement amount on the basis of age, annual income, savings, nature of accommodation, and the expected growth rate. In order to calculate pension following information is required:
1. Date of Birth: At the time of buying a policy based on the calculation of pension calculator one needs to provide with the date of birth, which is basically needed for record keeping purpose. It is always advisable to enter the date of birth as per government ID.
2. Retirement age: the best part about pension calculator it that it allows you to choose a retirement age as per your own desire rather than going for the official age of retirement as per government rules i.e.60 years for salaried people. This feature has been added keeping in mind the self-financed and voluntary or early retirement.
3. Annual income: in case of annual income it is advisable to enter the net income instead of gross income, as your income might include some fringe benefits which are given to you by your employer but not actually received in account.
4. Savings: in this field you are supposed to enter the amount of savings you have till date. It not only considers savings in the form of cash but also investment in various instruments like fixed deposit, recurring deposit, equity-linked saving schemes, etc.
5. Post Retirement Accommodation: in this field you are supposed to enter the nature of your accommodation after retirement i.e. whether you are living in a property owned by you or on rent. In cases like where you are still paying EMIs towards the loan then you are supposed to consider it while mentioning your annual salary in the pension calculator.
Most of us tend procrastinate retirement planning and saving for future, with the help of retirement calculator we can very get an idea of amount of money required post retirement and helps us lead a smooth hassle free life.
Importance of Pension Planning
- Increase in the life expectancy rate: with the advancement in science and technology, medical and healthcare facilities have also improved simultaneously, which in turn leads longer life span than in the older times. Eventually, in order to sustain long one needs to spend on healthcare. Therefore, proper planning to gather funds is required.
- Insufficient employer funded pension/ pension funds: generally the employer funded or government funded pension are insufficient to meet the post retirement needs. Therefore, it is essential have self-maintained retirement fund to back these employer funded pension which would help and individual to lead tension free post retirement life.
- Change of social structure: there may be some cases where the retired person might not want to depend on his family or children after retirement to meet expenses. In such cases maintaining an independent life can only be achieved with a back up funding plan.
- Social security system: our country lacks in having a proper social system. Therefore, it is important for an individual to plan in advance a sufficient amount of money to meet the daily expenses and also tackle unforeseen situations like medical emergencies.
- Contributor of the family: every person has desire to help his/ her family at important occasions, they want help their loved ones, especially grand kids whenever they can. Therefore, to fulfil this desire one needs to have funds and pension calculator is the best tool make this happen.
- Do what you love: after the retirement, one desires to do things which interest them or are their hobbies and also dreams which they couldn’t meet at the time of their job, desire to travel. To meet these dreams retirement funds are needed and pension calculator can help you know the amount of retirement fund to do the same.
Thus, the importance of pension calculator cannot be denied, as it not only helps an individual to gather retirement fund but also help them accomplish their aspirations and goals.
Factors Affecting Pension Plan Premium
- Retirement age : In India people usually retire at the age 60. But there are also situations where some people voluntarily work till the time they are physically fit to do so while others go for early retirement. Therefore, one needs make sure of the number of years remaining after deciding on the retirement age.
- Inflation : Inflation also plays an important role in calculating the retirement fund as post retirement since there are no earnings, all your expenses are from the amount gathered. Therefore, in price may affect you regular expenses.
- Life expectancy : : Try to choose a particular age of death for calculating the retirement fund. In India life expectancy rate is 70-80 years. But for calculation go for upper limit because life expectancy rate is increasing day by day.
- Rate of return on investment when working : During your working phase if you go for investing in financial instruments like shares, equity, real estate, gold then you may have chances of receiving higher returns, which in turn can help you in gathering big retirement fund.
- Expenses after retirement : It is important to calculate the amount required to sustain a lifestyle and expenses one currently has.
- Rate of return on investment post retirement : Usually people do not take the risk of making investment in money market after retirement. Therefore, this influences the return rate and may also differ for years after retirement.