Retirement is the life after stopping paycheques and living on investments and savings made during the working stage. Living too long will be risky if one fails to plan and not ready with sufficient corpus to generate month-on-month cash flows during the post-retirement period. Planning well in advance is the wisest thing to face life after the cessation of a paid job. Retirement planning has to be done based on the essential elements discussed below:
Know your goals: One should know his financial goals for retirement that need monetary resources. One has to start investing early in life to meet the same.
For example, if a person starts investing daily Rs 100 from age 25, he would have Rs 1.17 crores in his account at age 60 if investment returns at 10% daily compounded. The corpus would have been much higher had he invested in a top-performing equity fund that delivered 20% annualized returns. Investment returns at different rates are given in the table below. Take our help on how to start investing and start it right now without further delay. (Also read our article Compound Interest).
| Rate of returns % | Total Investment of daily Rs 100 from age 25 to 60 | Accumulated corpus | Multiples of original investment |
|---|---|---|---|
| 10 | 12,77,500 | 11,722,614 | 9.18 |
| 15 | 12,77,500 | 46,116,460 | 36.10 |
| 20 | 12,77,500 | 199,798,997 | 156.40 |
What is your current financial position: Person’s financial situation will be different from one stage to another. Say, a person in his 20s will have a different position than a person at 35 or 50, and based on that disposable amount for investments will be dependent. Try to invest the maximum possible amount of your monthly income; it can be 35-50% or even more.
When you want to retire: If a person knows the target age of retirement, he will be knowing how much time is left to retire to build the retirement corpus. He has to delay and extend the retirement if it is not achieved as per expectation.
How much corpus you need: Calculate monthly expenses, including expected medical bills and the effect of inflation and check if it can be met with the current wealth. If it is calculated appropriately and planned in the right way, it will take you to your goal or may even help you reach it earlier than expected.
How to build the retirement corpus: There are many investment options like PF, NPS, deferred annuity, varied mutual funds, term deposits to build the retirement corpus. Choose suitable investment options based on time horizon, risk appetite, return expectations, and tax consideration. There should be a combination of equity and debt for ensuring capital appreciation and capital preservation. A person has to start early and invest in aggressive financial instruments if he needs to get a minimum of 70% of pre-retirement income after retirement. Or it can be 50-50%, which means 50% in equity and 50% in debt.
How to generate post-retirement monthly cash flows: Once the goal is achieved or a person is retired due to job loss or early retirement, make own arrangements to get a monthly income maybe by purchasing an immediate annuity, monthly income scheme, systematic withdrawal plan, dividend or rental income from real estate, etc.
Take Help: By taking the help of an experienced financial planner and avoiding investment blunders, one can reach his target retirement corpus and monthly cash flows as per plan.
Also, read our articles “Best ways to boost your retirement corpus," “Is retirement planning necessary," "Misinterpretations during preretirement investing," “Portfolio Management tips during the retirement period.”
By Team Wealth ATM
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