Planning For Your Retirement
By Akhil Chugh
Date June 26, 2021
Retirement is fairly easy to put off and worry about later, especially when you are young. In the early years investors usually give preference to various near-term goals like Children’s education, real estate, marriage over their own retirement goal. Most of the investors do not understand the importance of retirement planning because it is an extremely long-term goal. Long-term goals usually get postponed more often as they seem easier to achieve.
We all have heard the famous story of the ant and the grasshopper. The grasshopper delayed storing food for winter, as it seemed too far away when the sun was shining nice and bright. And when the winter approached, he was left with no food & shelter to survive. Retirement planning could suffer a similar fate as we tend to prioritize near-term goals over it.
It is very important to realize that normal working life of any individual is till 60 years and assuming a life expectancy of 80 years, there is no income for the rest of the life. Therefore, we need to create a sufficient retirement corpus to last for these 20-25 years to live a stress-free retirement life and make the most out of it.
Importance of retirement planning in India:
- Stress-free retirement Life: Do you want to live a happy and peaceful life after your retirement – a phase when your monthly income is no longer coming into your account? The key to having a happy life post-retirement is to start investing as early as you can and have a retirement corpus in mind. You need to plan for a target retirement corpus that shall meet all your financial needs and goals in the future so that you don’t compromise on your lifestyle or quality of life at any stage.
- No Social Security System: India does not have a social security system like developed countries where the elderly is taken care of by the government.
- Rising Healthcare Expenses: With growing age, medical expenses usually account for the largest chunk of your total expenses. And this cost is sky-rocketing. The average medical inflation in India is around 12-14%, which is almost double the economic inflation in the country.
- Rising Inflation: The expected retail price inflation in India is 5.1% for 2021-22. This implies that a meal that costs you Rs 100 today, will cost you Rs 105.1 next year.
- Increasing Life Expectancy: Life expectancy in India is increasing every year with advancements in healthcare. Longer life means you’ll need more retirement funds saved to continue to live off of. That means saving more and planning for longer. The earlier you begin, the better your chances are for having enough retirement funds to last your entire lifespan.
How to calculate your retirement corpus?
The first step towards best retirement planning is to first determine the corpus you’d require and then work backward. There is no sure-shot formula for arriving at the right corpus needed for a comfortable retired life. However, there are few essential factors that a retirement calculator in India takes into consideration to arrive at a sum.
Use Net Brokers Retirement Planning Calculator to fund out the amount of monthly SIP required to reach your desired retirement corpus, calculated based on your current monthly expenses adjusted for inflation. Let’s understand how retirement calculator works:
Assume Mr. Mohit, who is currently 25 years has plans to retire at 60 years of age. Currently, Mohit’s monthly expenses are Rs 50,000 out of his total income of Rs 1,00,000. He wants to prepare and plan for his retirement as early as possible to reap the benefits of compounding. So he enters the following details in Net Brokers retirement calculator to know the required monthly SIPs that he should start to accumulate the desired retirement corpus to lead a comfortable post-retirement life.
After filling in the required details, the retirement calculator will give you the estimate of the required retirement corpus to finance your monthly household expenses after retirement & the amount of additional monthly investments (adjusted for savings) needed to accumulate the same.
In this instance, Mr. Mohit finds out that he requires a total retirement corpus of Rs 12.8cr to meet his post-retirement monthly expenses of Rs 5,33,829 based on his current expenses & expected inflation rate. And to accumulate Rs 12.8cr of retirement corpus, he needs to make a monthly investment of Rs 23,248 via SIPs for the next 35 years in equity mutual funds to lead a secured and comfortable retirement life.
Download Net Brokers smart mutual funds app today and calculate the right amount that you need to start investing today to help secure your retirement!
When to start planning for retirement?
Today.
Retirement planning should ideally start from the day you start earning to reap the maximum benefit of compounding.
We usually delay retirement planning, because we follow an order of goals. For example, buying a car at 25 years of age is more important, owning a house at 35 years of age is more important than retirement planning & so on.
However, the best choice for any early retirement plan is to begin investing in your early 20s. By doing this, you can accumulate a higher amount of corpus with a small amount of monthly investments. Starting retirement planning early gives you an edge as with a longer investment horizon, the compound interest in your investments increases exponentially. This is the power of compounding.
To help put things into perspective, here is a little representation of the impact of delaying investing.
Mr. Mehra & Mr. Ahuja are working professionals and are expected to retire at the age of 60. Mr. Mehra starts monthly SIPs of Rs 10,000 in equity mutual funds at the age of 25 years, giving him 35 years to accumulate the desired retirement corpus. On the other hand, Mr. Ahuja starts monthly SIPs of Rs 20,000 in equity mutual funds at age of 35 years, leaving him with 25 years of investment horizon to accumulate the corpus.
Let us assume that they both invest in an equity mutual fund with an inflation-adjusted annual return of 12%,
As evident from the above illustration, even though Mr. Ahuja invested (Total investments: Rs 60 lacs) more than Mr. Mehra (Total investments: Rs 42 lacs), he could not accumulate a corpus anywhere close to Mr. Mehra because he started late. That is the cost of delaying and the magic of compounding!
Thus, starting early is crucial in retirement planning.
Net Brokers Takeaways:
- Never withdraw funds from your retirement corpus, before you have retired, irrespective of the financial emergency as you cannot avail of any loan from any source to fund your retirement life.
- Review & adjust your investment portfolio regularly to earn maximum returns.
- Have different plans for different goals such as retirement, child’s marriage, child’s education, etc. Never use funds that are intended for some specific purpose, when you need money.
- Start your retirement planning as early as possible via monthly SIPs in equity mutual funds. Equity mutual funds give returns that beat inflation over the long term and can help you accumulate substantial enough retirement corpus to fulfil your retirement dreams.
- Invest regularly & increase your investments every year with rising income via SIP top-ups.
As George Foreman rightly said, “The question isn’t at what age I want to retire, it’s at what income.”
Net Brokers strongly believes that the right financial planning, while working, lays the foundation of your life after retirement. Do not go by hearsay in investing your hard-earned money, and instead, take the help of professionals from the finance field to make prudent & right decisions for yourself.
Get in touch with us today to learn more about how you can successfully plan your retirement.
Download our mutual fund app & start investing for your long-term financial goals.
Happy investing!