Why you need a retirement savings plan

Khaled Rahman, a recently retired bank officer, is in huge debt. On top of that, he has two children who study in private colleges. Now he is at a loss by thinking how he will manage all these, as he does not have enough savings.

Not only Khaled, but there are many other retired officials who are encountering the same problem.

Bangladesh is a land of over 16 crore people. The average life expectancy of a Bangladeshi is now around 70 years, which will result in an increased reliance ratio and reducing the potential support ratio.

Thus, without sufficient savings, most senior citizens will face a serious problem. But a larger number of individuals are retiring with fewer savings than they need to.

Fidelity Investments Inc, an American multinational financial services corporation based in Boston, recommends certain levels of retirement savings at one age. For instance-

At the age of 30, one should have at least his annual salary saved.

At the age of 40, one should have saved at least three times his or her salary.

At the age of 50, one should have six times what he or she or she earns annually saved for retirement.

At the age of 60, the focus is to have eight times his or her income, and it should reach ten times by the age of 67.

However, it’s never too late to start saving and maximise what we already have. A few tips can help to stay on track, no matter what an individual’s age or financial situation is.

Start early and set a goal

The best day to start saving is today, even if the amount is little. One needs to try saving a little bit more each year.

Suppose, two people — one is 20 and the other one is 10 years older than him — start saving the same amount of money at the same time, with the same return interest. Then stop this upon retirement, at the age of 60, one will end up saving twice just by starting early. Thus, the irony of retirement savings is one should start young. Also, this practice can become a habit if someone starts it at a young age.

Furthermore, one has to plan his or her expenditure and inspire himself or herself to increase savings. If people want to turn their retirement dreams into reality, they need to see where they are today, the dream of where they want to go and make a plan to get there. This way, one can reach their goal faster.

Trim down your cost of living

Cut back and then deposit that extra cash into a savings account until you hit the goal. By restricting access to your money, saving accounts can provide interest which can be beneficial to reach the savings goal.

Therefore, in order to reduce expenses, one needs to cut down his or her living cost. Actions like downsizing or moving to a more affordable area could make a huge long-term difference financially.

Moreover, cutting down the subscription or membership that is not necessary, or cooking more meals at home instead of going out to eat as often can be a way of reducing cost.

Also, s/he can eliminate unnecessary routine expenses from his/her daily life. For example, smoking, lunch out, coffee, and other low-cost items are everyday expenses for many of us. However, these items are not necessary. And even though the daily costs are small, the total expense over a year could represent a significant saving.

Nevertheless, one needs a very clear understanding of exactly how he or she is spending his or her money and on what. For that, he might take a look at his purchases over the past few months. Then he can identify the spending habits that he can eliminate. Or, he can simply try to keep a record in a notebook, a spreadsheet, an app or on his phone of every penny that he spends.

Bank Fixed Deposits

Fixed deposit is a document that is given by the bank or by the company to the depositor on booking a fixed deposit. Moreover, it provides investors with an interest rate that is higher than what is offered on normal savings accounts. The maturity value of a fixed deposit is based on the date of maturity chosen by the individual.

FD is a favourite investment option for senior citizens and young people. The reason for it being safe is because it comes with a fixed, regular income.

In this regard, Nafisa Rashed, a homemaker said, “For the past few years, I have been saving money in a recurring term deposit regularly and then reinvested the entire maturity proceeds in a fixed deposit for the long-term.”

She added, “It’s a long wish of mine to buy a flat on my own, and this way I am very close to my target.”

Deposit Pension Scheme (DPS)

Saving for the future is like a pension we earn over the span of our life. After a few years, our little drops of savings every month can end up with a stream of relief. Therefore, DPS can be a good option for this.

DPS is a monthly instalment-based savings deposit for individual customers. It inspires one to build up a big sum on small regular deposits. That means, in this account a customer can deposit a certain amount of money for a certain period. And an agreed amount will be paid to the customer on maturity.

Maliha Rahman, a teacher of Lakehead Grammar School, has just opened a DPS account and believes it’s never too late for that.

“The main reason for my DPS account is getting financial security. I want a secure future for myself and my family members,” she said.

“We can’t guarantee what our future will present to us. Right now, I have a flow of cash. After five years, I am not sure where my life will take me. That’s why I thought it would be a great way of saving to afford my future luxuries,” she added.

Invest in Real Estates

Buying and owning real estate is an investment strategy that is both satisfying and lucrative. One can invest his or her savings on a property and then can resell it for profit or can rent it out for ongoing income. Although this sector is hit by the pandemic, there are still many who are getting benefit out of it.

Abid Khan, a recently retired government employee is the owner of a shop. He rents out his shop and earns a good amount of money. He said, “I am not comfortable with taking the risk in businesses. Thus, rather than on banks, I invested my money on buying a shop.”

“Every month I get around thirty thousand takas out of it and it is helping me to maintain my previous lifestyle,” he added.

However, it is important to keep in mind that savings and saving goals are subjective to one’s lifestyle. There isn’t a one-size-fits number. Everyone has their own dream number — that means spending and saving vary.

So, to enjoy greater security and a stress relief life after our retirements, we need to start saving and investing now.