Retirement is inevitable. At some point in life, there will come a time when you decide to stop working and just relax. Although, you may be too young to think about retirement now, planning early is essential. Here’s why.
Why retirement planning?
It allows you to be financially independent even after your retirement. Imagine having to give up your current standard of living due to insufficient funds during your retirement years! Depending on your kid’s to take care of you and your needs! In order to be carefree during your golden years, the sooner you begin planning for your retirement, the better. The retirement corpus also comes in handy in case of medical emergencies.
Deciding on a retirement corpus
Irrespective of your age and income, you should allocate a portion of your income for your retirement years. You can always increase the amount of savings as you move up the corporate ladder. To understand how much you need to save and invest, first, decide the corpus you wish to accumulate. Then, work backward.
Years of service
The ideal age to retire is 58-60 years. If you plan to retire early, the amount to be saved per month will, naturally, increase. The opposite is true if you wish to continue working after 60.
Improved medical facilities has improved life expectancy in India. Therefore, you should save for at least 20-30 years. You may need this amount in your retirement years.
The price of goods and services today will increase by the time you retire due to inflation. To maintain your current standard of living and ensure security, the inflation rate must be factored in while calculating the corpus.
Rate of return on investment
Your investments are your assets. These assets grow in value over time. Estimate the expected rate of return from these investments. Also, consider some of your future investments until you retire. Depending on your investment portfolio, the rate of return will vary. If your portfolio is debt-focused, the returns will be lesser than the standard. If the portfolio is equity-focussed or has real-estate, the returns will be on higher side.
Your expenses may reduce by 10%-20% after retirement, considering you wouldn’t have a loan or children’s education to take care of. But, it is better to account that in as a provision for emergencies. As can be seen, the corpus needed to live an independent life after retirement is huge. So, start planning today for a better tomorrow.