The Buyt Desk
Retirement planning is the most crucial part of financial planning. The aim of retirement planning is to live a comfortable life after retirement. The important question is how to accumulate a retirement corpus while you are still working. If you plan to retire early then you have less time to accumulate the corpus. Moreover, you will need a greater amount of corpus because the retired life will be longer. A common mistake during the accumulation phase is ignoring the yearly inflation rate. The value of your savings will decrease over a period because of inflation. Thus, you need to accumulate a greater amount of corpus that can balance the ever-increasing inflation.
Once you answer the following questions, it will be easier to create the retirement corpus.
After how many years will you retire?
Though everyone would like to retire early, is it really possible? It is possible if you accumulate a quite large retirement corpus because the fact is, early retirement equals longer retirement time. You can fulfil this requirement when you earn an incredibly high income. This might not be the case for everyone. As with everything in life, maintaining a balance is important. Calculate the number of years after which you want to retire thoughtfully and then accordingly save and invest for your retirement.
How much will be your monthly expenditure during retired life?
The estimate of your monthly expenditure after retirement should be realistic. Do not keep a low number just because you will have to save less. For the estimate, consider your current monthly expenditure, your lifestyle needs, and the inflation rate. There will be certain expenses like loan repayment that would stop after retirement. Therefore, you can deduct them from the estimate. A genuine estimate of your monthly expenses during retired life will determine the requisite amount of retirement corpus.
What will be the expected returns from investment/saving during the retired life?
As an earning professional, you can afford to take risks with your investments. For example, you can choose to invest in equity mutual funds over fixed deposits. However, as post-retirement, you are not earning, your risk-taking capacity goes down. During the retired life, your investment portfolio would shift towards schemes, like Senior Citizen Saving Scheme, that provide a fixed and regular income. You should consider the probable rate of return from your post-retirement investments while deciding upon the amount of retirement corpus.
Once you are ready with the above answers, you can determine the amount of retirement corpus. Finance and tax experts have come up with a 4% withdrawal rule for retirement. This helps you estimate the amount of corpus considering monthly expenses and inflation. If your current monthly expenditure is Rs.50, 000 per month i.e. Rs.6 lakhs per year then you will require Rs.1.5 crore (6, 00,000 x 25) to sustain for 25 years post-retirement.
Be realistic while calculating the retirement corpus. It is best to seek advice from certified financial experts for any financial decisions.
