Retirement planning is a crucial aspect of financial management that often gets overlooked until later in life. Life is full of uncertainty but few things are certain and retirement is one of them. Once you are tired, you leave your employment/business, we call this retirement.
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Retirement is the time to sit back and enjoy your life! You have a lot of time to do what you want when you want and how you want to, so we can say life begins at retirement.
To enjoy this life you require a lot of money, you might be thinking that retirement is quite far away why we should think about this money requirement today, We have to because:-
“Our future tomorrow depends on the choices we make today.”
Today, you are having a comfortable lifestyle. There is regular income and your day-to-day expenses are taken care of. However, the future will not be the same. Rising inflation will affect everything. A packet of bread that costs Rs.60 today could cost around Rs.300 twenty years later. This means on retirement your expenses will skyrocket. Unless you have sufficient income after retirement, it may be very difficult to manage your expenses.
Therefore we need to plan for retirement today itself. It’s something like “Working for not to work.”
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This workout is very important because your retirement income –
- needs to last a long time. (Up to your life expectancy.)
- needs to cover all your living expenses:
- the necessities,
- the things you want to do, and
- any future health care costs.
- will come from multiple income sources that will start and end at different times, possibly leaving gaps.
Retirement Planning involves making financial decisions now to ensure a comfortable and secure retirement in the future. Retirement planning in India requires a deep understanding of various factors. Retirement planning should account for potential future needs including rising cost of living, inflation rates, changing lifestyle preferences, and access to home health care service. This ensures that retirees can receive personalized care in the comfort of their own homes, which can be essential for maintaining quality of life and independence as they age. Additionally, knowing the retirement age in India is essential for planning purposes, as it affects the duration of savings and investments.
Retirement Planning Quiz
So, let’s take a small quiz to find out if you are ready for retirement or not.
Have you planned your retirement? |
1. How much of your income is predictable? a. 100% b. Up to 80% c. Up to 50% d. Less than 50% 2. What are the sources of your retirement income? a. Pension b. Returns from investments c. Bank Deposits d. All of these 3. How long will your retirement corpus last? a. Lifetime b. Five years after retirement c. 10 years after retirement d. I don’t know |
Key to quiz: – If you answered a. or b. to question 1, d. to question 2, and a. to the last question, you have planned your retirement well. If you have answered differently, then you must plan for your retirement. |
So, if you are not ready for your retirement we will help you to figure out how much you will need in your sunset years.
Retirement corpus calculation is one of the most complex economic calculations. Most of the clients when thinking of retirement corpus have simple calculations in mind that they spend X amount every year & in the future they need some X retirement corpus assuming a rate of 8% but they ignore many things including tax & inflation once they reach to retirement they don’t have any choice but to adjust their lifestyle.
To avoid this type of situation we are here with a step guide to plan your retirement.
Retirement Planning Steps
To avoid this type of situation we are here with a five-step guide to plan your retirement.
Step- 1 – Find out your Monthly Expense
To estimate your expenses post-retirement you must know your current expense. Based on your current monthly expense you can drive your total annual expense, just multiply it by 12.
Step -2 – Future Annual Expense
To calculate future annual expenses you must decide the assumption on the Inflation rate the number of years left for your retirement & Your life expectancy. Based on the above input we will calculate Future Value
FV (Inflation Interest, Number of Years left for retirement, Present Expense) FV is a Microsoft Excel function
Step-3 – Retirement Corpus
To calculate retirement corpus apart from the above we have to assume the inflation rate during retirement years. Based on these inputs we will calculate Net Returns and corpus required.
PV(Net Returns, Retirement Years, Expense First year of retirement, Payment due =1) PV is a Microsoft Excel function
Step-4 – Utilization of Current Assets
In this step, you have to make a list of your current assets and their values (like equity, mutual funds, PPF, or others). Based on this value we will come to know the deficit (actual amount) for which investment is required (Corpus required – Current Assets).
Step-5 – Monthly Investment required
Once you know the actual amount for which you need to invest your task will be quite easy. Based on investment options available in the market you can select the the best suitable option for your needs, if required you can get advice from a financial planner.
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Please note: –
- This retirement corpus calculator is made by using the inbuilt functionality of Excel FV= Future Value & PV = Present Value we have tested it repeatedly for the accuracy of the result. Like every tool it provides an estimated retirement corpus and monthly investment required.
- For simplicity, the inflation rates before and after retirement are taken to be the same 7%. This inflation rate is an assumption only it may fluctuate from time to time.
- The rate of return is taken constant it may change based on investment options.
Conclusion
In conclusion, preparing for retirement in India requires careful planning and proactive decision-making. By understanding the intricacies of retirement planning, leveraging free resources, and adopting a holistic approach that encompasses finances, healthcare, and lifestyle considerations, individuals can embark on their retirement journey with confidence and security.
FAQs
What is the ideal age to start retirement planning?
It’s never too early to start retirement planning, but ideally, individuals should begin in their 20s or 30s to maximize the benefits of compounding interest.
How much should I save for retirement?
The amount varies depending on individual goals, lifestyle preferences, and anticipated expenses in retirement. It’s advisable to aim for saving at least 10-15% of income towards retirement savings.
Are there any government schemes for retirement planning in India?
Yes, the government offers various schemes such as the Employee Provident Fund (EPF), Public Provident Fund (PPF), and National Pension System (NPS) to facilitate retirement planning.
Is it possible to retire early in India?
Early retirement is possible with careful planning, disciplined saving, and strategic investments. However, it requires meticulous financial management and realistic goal setting.
How can I ensure my retirement savings last throughout my lifetime?
To ensure longevity of retirement savings, consider factors such as inflation, investment returns, healthcare costs, and potential lifestyle adjustments. Regularly review and adjust your retirement plan as needed to stay on track.
