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Top Reasons to Save For Retirement Now

Published On Sep 15, 2021 4:00 PM By InsuranceDekho

At the time of retirement, one gets retired from work alone and not from life. One may have planned on fulfilling various dreams for themselves after their retirement.  Also, people would want to continue with their lifestyle without getting worried about their finances and expenses. Let us know in detail about the top reasons to save for your retirement.

1. Depending on Social Security

Social security can never be considered as the only source of income during retirement. As per the Social Security Administration, the payment made under social security replaces around 40% of the income of the average wage earner post their retirement.  Many financial advisors are of the view that retirees would require around 70% of their income in order to live comfortably post their retirement. Therefore, to maintain your standard of living post retirement, even alongside social security you would need to have around 60% of your earned income.

2. Savings in Tax Deferred Retirement Account

There are several investment opportunities available, however, when talking about retirement your primary focus needs to be on the one that was designed keeping retirement plans in mind, which is the tax deferred retirement account. Some of the benefits received from tax-deferred accounts are as follows:

  • The amount of tax on the income earned each year reduces as you invest in it.
  • It creates earnings on the earnings, thus creating a compounding effect which is unavailable in regular savings accounts.
  • It helps you to avoid or defer the taxes that you owe on the income  that accrues upon your investments.

Must Read: Eligibility For Availing Group Term Life Insurance

3. Compounding Effect

Suppose that Mr. Advait invests Rs 50,000, and it accrues the earnings at 8% per annum rate i.e producing earnings of Rs. 4000. In this case, the tax rate is 22%, and amounts to Rs. 880 that needs to be paid to tax authorities, leaving behind Rs 53, 120 for reinvestment. It simply means that not only would you have to pay less in taxes but your investment value would be even greater as a consequence of the compound effect of tax deferred growth.

  • Around Rs. 630,000 in case one has saved the amount in a tax-deferred account.
  • Around Rs. 580,000, in case one has saved the sum in an after-tax account

These numbers get even more bigger and compelling in case the earning duration is longer and the amount saved is greater.

4. Staying with Your Children

If one has kids, it is likely that they would love to spend as much time with them as they can. However, one probably also wishes to be at their own discretion. Most individuals would not wish to live with their children only because they cannot afford to live on their own independently after their retirement. Until the time you get a bigger inheritance or win a lottery, one is required to plan for their retirement and save enough to meet their expenses after their retirement.

Also Read: Term Insurance Plan for All Age Groups

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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