JOIN USHow to make retirement planning simpler
Growing old is inevitable. But we have seen that those in their twenties or early thirties rarely feel concerned about their retired life, tucking the planning away for the future. If you too believe that retirement is far away and you need not worry about it now, think again. It is crucial to plan for retirement while you are young to maintain the same lifestyle. If you are serious about planning for your grey hair days, there are a few simple steps to get a crack at it:
1. Decide your retirement age
The first step is to estimate your retirement age. Ideally, most people retire at 60, but some may want early retirement or prefer to work beyond 60 years. Decide for yourself at what age you would like to stop working. With improving healthcare facilities and a better lifestyle, most personal finance experts now advise assuming a life expectancy of 80 for men and 85 for women. Factoring in life expectancy gives you a realistic picture to plan your finances better.
2. Estimate your retirement corpus
To estimate a figure, ask yourself a few questions - how much do you need each month to live a comfortable life? Would you need the same amount post-retirement or more? Now you need to factor in inflation. Inflate your existing monthly expenses at an annual inflation rate to calculate their value at your retirement age. For example, if your retirement is 30 years away and your monthly expenses are Rs 50,000, you would need Rs 2.87 lakh each month post-retirement. The next step is to inflate this value per your life expectancy and calculate the retirement corpus that would last you for a lifetime. A financial planner can help you to calculate these figures.
3. Collecting the retirement corpus
The retirement corpus thus calculated might blow your mind. You may feel it is impossible to collect this amount of money. Now, you must understand why starting early on is advised. You can accumulate the retirement corpus simply by investing a few thousand rupees each month in an equity mutual fund. You don’t need a lot of money to retire rich. All you require is a disciplined manner of investing. You can use an online calculator to estimate the monthly SIP amount you need to accumulate the retirement corpus that you have calculated.
4. Factor in pension schemes
If you are a salaried employee or self-employed, you might be investing in small savings schemes such as Public Provident Fund, Employee Provident Fund, or National Pension System. As you calculate your retirement corpus, you may want to factor in these existing investments. After all, these investments will mature by your retirement age. However, if you have linked your PPF investment with other investment goals or withdrawn the EPF amount after a job change, you cannot consider it for retirement. If not, please continue these tax-efficient investments till your retirement. Contemplate investing in NPS if you haven’t done it already, as it will boost your retirement corpus.
5. Post-retirement strategy
Have a plan in mind as you get closer to your retirement. You need to move your money from an equity mutual fund to debt or a fixed deposit to protect your retirement corpus from unforeseen stock market risks. Speak to a financial planner and figure out ways to invest your retirement corpus efficiently to earn tax-efficient monthly income from different investment avenues. Investing your retirement corpus smartly post-retirement is as crucial as accumulating it during the pre-retirement phase. Strive to achieve a balance between safer and aggressive investments. Ideally, safer investment venues should be preferred post-retirement, but if you are an aggressive investor, you can continue equity investments. Balance is the key.
Having a full-fledged financial plan helps in planning for retirement and other goals. A professional can help you review your financial plan periodically so that your retirement planning is up to date as per changing inflation and investment scenarios. Do it yourself or reach out to a professional, but get serious about retirement planning for a comfortable evening of life.
(The author is the managing director and CEO at Axis Securities.)