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Top 6 Retirement Planning Tips

Jun 19, 2019 / Dwaipayan Bose | 95 Downloaded | 2656 Viewed | |
Picture courtesy - UNSPLASH

Why is it important?

The goal of retirement planning is to accumulate a corpus that will ensure your financial independence and maintain lifestyle during a period where your only source of income is from your investments. Retired lives can be long (20 – 30 years) and so your corpus needs to be large enough, so that you do not run out of money during your lifetime. If your spouse outlives you, then your retirement corpus should also ensure her financial independence for her lifetime. Finally, your corpus should be sufficiently large for you to meet inflation fueled increasing expenses during retirement. These challenges make retirement planning one of the most important financial goals for any family.

Suggested reading: Why retirement planning is important for everyone

How to succeed in retirement planning by following 6 tips?

  • Start early

    : There is a definite retirement age in most jobs. The earlier you start, you get more time to save and invest for your retirement goal. The later you start, higher is the risk of falling short of your retirement goal.

  • Factor inflation in retirement planning

    : Your expenses will be many times higher by the time you retire because of inflation. Suppose your monthly expense is Rs 1 lakh. After 30 years, assuming CPI inflation rate of 4%, your monthly expense will be Rs 3.25 lakhs. You need to plan accordingly.

  • Invest your savings

    : While saving is necessary, it is not enough to meet your retirement goal. The post tax yields of most savings products fail to beat inflation. You need to invest in the right assets to beat inflation and create wealth through the power of compounding.

  • Asset Allocation

    : Proper asset allocation will ensure that you meet your retirement goal by balancing risk and returns through various stages of life. When you are young, you have high risk appetite and long investment horizon; equity is the best asset class during this stage of life. As you gradually near your retirement goal, you need to rebalance your asset allocation towards debt.

  • Invest systematically

    : Investing your regular monthly savings in mutual funds through systematic investment plan (SIP) is the most effective way of planning for your retirement goals as it leverages power of compounding to create wealth. It is equally important to increase your SIPs (through mutual fund SIP top up facilities) on a regular basis because with increasing income your lifestyle becomes more expensive.

  • Contingency Planning

    : Life can sometimes throw nasty surprises like sudden job loss, serious illnesses and even untimely death. You should have sufficient funds to meet 3 – 6 months of regular expenses parked in liquid or ultra-short duration debt funds. You should also have sufficient health insurance cover for your family to meet any medical exigency. Finally, you should have adequate life insurance cover that ensures financial security for your family in the event of an unfortunate death.

Retirement Planning Calculator

We are sharing an easy to use retirement planning calculator which can enable you to calculate how much you need to save for your retirement planning. You have to provide the following inputs to the calculator:-

  • Amount that you incur as monthly expenses (Rs)

    – This is your current monthly household expenses which increases every year

  • The expected rate of inflation over the years (% per annum)

    – CPI inflation rate over the last few years has been 4.5 – 5%

  • Your present age (in years)


  • Age you plan to retire (in years)

    – Retirement age in India is usually 60 years

  • Life expectancy (in years)

    – In India, it is around 80 years now

  • Inflation during your retirement years (% per annum)

    – Input the CPI inflation rate which you expect during your retirement years

  • Expected Investment Returns (% per annum)

    – Input the return you expect on your investment

  • Expected Returns on Retirement Corpus (% per annum)

    – Input the return you expect on the accumulated retirement corpus

Once you provide these inputs, our calculator will estimate the retirement corpus you need to accumulate. It will also estimate the amount you need to save either as lump sum or through monthly SIPs based on real return (%).

Conclusion

  • Retirement Planning is one of the most important life-stage goals

  • You need to start your retirement planning early in life, know how much you have to save and invest in the appropriate asset mix over different life-stages to meet your retirement goal.

  • A retirement planning calculator can help you to estimate how much you need to save

  • Mutual Fund SIP is one of the most effective investments for retirement planning

  • You should always have contingency plan in place, so that your retirement planning is not derailed by unexpected adverse events.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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