All about Retirement Planning योजना निवृत्त झाल्यानंतरची
All about Retirement Planning
Wait wait wait… Are you talking about Retirement planning? Man, Kal Kisne Dekha hai? (Who has seen the future?) And there are other important things to be taken care of. There are other important goals that I want to achieve and I do not have money and even time to think about this Retirement planning thing.
Well, if you are not aware about retirement planning, let’s try to shake you out of your slumber. How much do you need at the retirement to maintain the same lifestyle that you have at present?
Hey man, what are you talking about? I spend around Rs. 25,000 on my monthly expense now and I expect around Rs. 10,000-15,000 increase when I retire. So, it will be around Rs. 35-40 K when I retire. No Big Deal...
Hey, do you know one Monster called INFLATION? Who loves to eat money and by doing this, he reduces your purchasing power.
What do you mean by this?
Currently, you are spending about Rs. 25,000 per month. At the time of retirement i.e. 30 years from now, you will require around Rs. 1.43 Lakh if you consider inflation at 6%. If you manage with 80% of your present expense i.e. Rs. 20,000, you will need around 1.15 Lakh every month.
I never thought of this. This is quite shocking.
Shocking? The real shock will come now.
If you live till 85 i.e. 25 years after retirement (assuming you will retire at the age of 60) the value of the corpus you need to build is a staggering Rs. 2.33 Cr if you assume inflation at 6% and return on Investment at 12%
Man, this is really shocking. This is frightening and scary. What to do man? How can I achieve this goal? Because, right now, I don’t think I can achieve this.
Hey don’t worry. Now, let’s talk about the good part. You can achieve these goals with ease. Remember Age is on your side.
Let’s Start:
Start Saving Early and stick to your goals
The earlier you start the better it is. One mistake people make is to defer retirement planning till it’s very late.
Most of the people either they do not correctly estimate the amount that they will need at retirement or they are focused on just short-to medium-term goals such as buying a car or a house.
An early start means you will have to save a lot less to create the same corpus.
For example, in above calculation, Rs. 2.33 cr corpus is needed at the time of retirement. Let us say, you need Rs. 3 Cr as Retirement corpus. Let us check at monthly investment required at various age level.
As you can notice from above chart that just Rs. 5500 per month is required at the age of 25 to get Retirement corpus of Rs. 3 Cr. This amount gets substantially increased when you start saving late to build retirement corpus. If you start at the age of 45, you will need whopping Rs. 63,630 per month.
Remember, compounding pays off. Compounding is when the money you earn from your investments is reinvested to earn even more. The earlier you start, the longer your money has the opportunity to compound to enhance your retirement corpus and achieve your goals.
Make the most of automatic investment opportunities. Investment avenues such as Systematic Investment Plan are often the most convenient way to invest. Once you’ve enrolled, the plan provides the discipline of regular additions to your investment portfolio. And because the money is deducted from your paycheck, you’re never tempted to spend it on something else.
Make saving for retirement a priority. Devise a plan, stick to it, and set goals.
Increase investment as your income grows
By how much did your income go up? More importantly, did you step up the quantum of your investments accordingly? Not many people do that. Most of this year’s increment would have been nullified by the increase in the cost of living. But even when there is a marked increase in the investible surplus, people don’t match their investments with the increase in income.
Let us look at an example:
If a 30-year-old with a monthly salary of 50,000 starts saving 10% (Rs. 5,000) for his retirement every month that earn 12% per year, he would have accumulated Rs.1.52 Cr by the time he is 60. Now, assuming his salary increases by 5% every year and he raises his investment accordingly, he would have a retirement corpus of 2.20 Cr. Assuming his salary increases by 10% every year and he raises his investment accordingly, he would have a gargantuan retirement corpus of 3.75 Cr. (i.e 162% increase in corpus as compared to savings without any increase in investment)
It is important to maintain the retirement savings rate at 10% so that your Retirement corpus doesn’t fall short of your requirements. The icing on the cake can be periodic boosters whenever you get a windfall, such as a tax refund or a lump-sum payment in the form of, say, an annual bonus. The trick is to commit yourself to save more in the future.
Don’t dip into the Retirement corpus before you retire
This might sound weird, but every time you change jobs, your retirement planning is at a grave risk. This is because you have the option to withdraw your PF balance at that time or transfer it to the account with the new employer. Besides, there is the option to withdraw your PF amount if you need the money for specific purposes, including your child’s marriage, buying or building a house, or in medical emergencies.
Dipping into the corpus before you retire prevents your money to gain from the power of compounding. Don’t underestimate what this can do to your retirement savings over the long term. A person with a basic salary of Rs 25,000 a month at the age of 25 can accumulate Rs 1.65 crore in the PF over a period of 35 years. This is based on the assumption that his income will rise by 10% every year.
Save for retirement, borrow for education
Our kids are out first priority and every parent wants to give their child the very best in life. But that often means compromising on your own future. Whether it is to fund a child’s education, or wedding or just to make sure they want for nothing, many parents tend to dig into their retirement savings.
This is risky business, as saving for your retirement is a crucial aspect. You have to contend with the fact that your retirement is going to be different from when your parents retired. You will probably have to fund the entire thing. But this doesn’t mean that you have to be selfish. You just need to be smart about it. A child’s education can be funded by an education loan, which can be paid off by EMIs.
What’s more, the government encourages you to take loans by offering tax breaks on the interest paid on housing (Under Sec 24 Subject to maximum limit of Rs. 2 Lakh) and education loans (Under sec 80 E) and Principal Amount under Sec 80 C. (Subject to maximum limit of Rs. 1.5 Lakh). No bank, however, is going to lend you for your retirement. Sure, there are reverse mortgage schemes, but those require your house to be kept as collateral.
An education loan helps inculcate financial discipline in the child. If he is responsible for the repayment, he gets into the saving habit early in life.
How to ensure a comfortable retirement?
- Start Saving Early and stick to your goals
- Increase investment as your income grows
- Don’t dip into the Retirement corpus before you retire
- Save for retirement, borrow for education
- Improve your skills, so that you can take up some assignments even after your retirement. Post retirement life will be active also.
- Buy a health insurance cover that continues till you are 70-75 years old. It is difficult to buy one afresh when you are older and not so healthy.
- Don’t hold extra cash. Keep only that much cash in hand as you will need. The more cash you have in hand, the more likely you are to spend it.
Comments
Post a Comment