We all work day and night to earn money. Why? Just because we all want a comfortable life today and tomorrow.
Today is well taken care of by our current occupation but what about tomorrow. Here Retirement Planning come into action.
For the sake of Retirement income people invest in pension plans, annuity plans or remain dependent on their PF and PPF only.
However, in more than 90% of instances, consumers underestimate their post-retirement costs. In most cases, people are unaware of how much corpus will be needed to cover post-retirement living expenditures, medical costs, and other travel, gifting, and incidental costs.
Table of Contents
What is Retirement Planning?
You can invest systematically on a monthly/quarterly/half yearly/yearly basis to accumulate the desired Retirement corpus.
Otherwise, you can also invest a lump sum amount whenever possible or you can invest lump sum amount along with SIP investment.
Because retirement planning is a unique customized plan, therefore, you can customize your contribution as per your cash flow.
For Retirement Planning you can choose from the wide variety of Investment options such as pension plans, annuity plans, post office saving plans, National pension Scheme, PF accumulation, Retirement corpus from job, rental income or interest income from fixed deposits.
Additional Reading:https://bestinvestindia.com/why-is-retirement-planning-important/
https://bestinvestindia.com/national-pension-scheme-nps-withdrawal-rules
https://bestinvestindia.com/7-effective-steps-to-financial-independence-retire-early-fire/
Why do you need Retirement Planning?
As the name ‘Retirement Planning’ is self explanatory in itself. Retirement Planning is needed to meet future expenses without any hassle.
There are multiple reasons why do you need Retirement Planning:
- To cover daily expenses in post retirement days
- Right estimation of future corpus required so to ensure smooth cash flow
- Meeting medical expenses which are not covered with regular Mediclaim policies
- To deal with inflation and other contingencies
- Above all, for mental satisfaction and peace because you are well planned
What is retirement planning process
Your this monthly 50k expenses will be around 2.40 lacs per month after 25 years.
If you don’t know where you’re going, your chances of getting there are low. Retirement planning allows you to reach at your destination on time.
Mamta Khanna, CFPCM
Why so?
Imagine your life 25- 35 years back in time. Try to remember, what were your expenses at that time and what are your current expenses today. I am sure you will say, your expenses have increased significantly.
Or you might say, yeah!
The expenses have increased but, I have raised my standard of living and that is why expenses have increased.
Whatever may be the reason, whether it is inflation( rate of goods price increase) or you have raised your living standard. The expenses will increase with time.
History will repeat itself and your expenses are going to increase with time.
Steps of Retirement Planning
Step 1# Decide Your Retirement Age
Step 2 # Calculate your current monthly expenses
Step 3 # Calculate your future expenses considering inflation into account
Step 4 # Determine Retirement corpus required( Consider real rate of return)
Step 5 # Identify your other Retirement income sources
Step 6 # calculate the differential required
Step 7# Determine investment commitment on monthly or yearly basis
Step 8# Plan and create a ideal portfolio, if needed take professional help from a Certified Financial Planner
Step 9 # Track and Review your Retirement Plan on periodic basis
Here are some details for each step.
Step 1# Decide Your Retirement Age
The very first step is to decide when you wish to take retirement from your active job. People usually take retirement from their active jobs at the age of 60. But, there is no need to stick to this old stigma to retire at the age of 60. You can choose retirement age as per your own choice.
Now a days, people also choose an early retirement to pursue another carrier or follow their passion. To know more about Early Retirement Please watch the video.
Step 2 # Calculate your current monthly expenses
Before starting any kind of planning, it is necessary to estimate your current monthly expenses. For calculating monthly expenses, you can exclude your children expenses, EMIs, insurance premium, office going expenses etc.
Also in your post-retirement days, you may think about reducing your spending too. If you think in same way than you might deduct up to 20% of your expenses.
Step 3 # Calculate your future expenses considering inflation into account
The next step is to inflate your monthly expenses after taking inflation into account.
For example
| Present Monthly expenses | Inflation | Time left to retire | Future monthly expenses at 60 |
| 50000 | 6.5% | 10 | 94000 |
| 50000 | 6.5% | 20 | 176000 |
| 50000 | 6.5% | 25 | 241000 |
| 50000 | 6.5% | 30 | 330000 |
Step 4 # Determine Retirement corpus required
You can assume your life expectancy based on your family history and your own health status. Now is the time to calculate your total post retirement expenses. For instance, for a 30 year old person who want to retire at 60, current monthly expenses are 50K.
Considering 6.5% inflation, he will require over 7 crore for 25 year long retirement. The other living expenses such as travelling, gifting and medical cost should be calculated separately.
Is this amount achievable?
The figure of 7 Cr looks too huge to achieve for a middle class person. But believe me, you can achieve and accumulate much more than this.
You will ask me how?
With the handholding of a Financial Planner and right planning you can definitely achieve this amount and live a blissful life. Financial Planning help you to set right asset allocation, product mix, access your risk profile, help you to manage your cash flow required to invest in a disciplined manner.
Step 5 # Identify your other Retirement income sources
Now you know your retirement corpus. But the work is not done yet. Now you need to find out your income from other sources like retirement benefits from you employment, Your PPF balance, Your PF balance, insurance policy maturity, if any and your other savings too.
Step 6 # calculate the differential required
,Find the differential of both and derive the net retirement corpus required. Otherwise you can reduce the monthly income required and re- calculate the required corpus.
Step 7# Determine investment commitment on monthly or yearly basis
On the basis of corpus required, you can determine your monthly or yearly investment amount.
Step 8# Plan and create a ideal portfolio
To save for retirement you can choose the product mix and set your asset allocation. You can choose to invest in equity and debt investment proportion. For equity allocation you can choose equity mutual funds and NPS, while for debt allocation you can consider your investment in PPF, PF, Insurance policies and your other savings.
Step 9 # Track and Review your Retirement Plan on periodic basis
The next step is to regular monitoring and reviewing the plan so that you remain on the track. In case of any issues with the investment type you can timely change your allocation or the investment itself.
Retirement Planning with Best Invest India
We at Best Invest India follow an in depth understanding of client’s profile, needs and requirements. Prepare a excel based Customized Retirement Plan.
Step 1: Understanding Clients’ Risk Profile
We provide a questionnaire to the client and ask them to fill the questionnaire. This helps us to understand their risk taking capacity based on behaviour and other factors. Thus enabling us to determine the right asset allocation for the client.
Step 2 : Assess The existing Investments
After understanding the risk profile of the client, it is necessary to review and analyze the existing investments, other savings and cashflow. The right investing pattern can be judged by the cashflow of the client. Existing investment review helps to eliminate the low paying investments which do not provide any monetary benefit to the client ( inflation factor taken into account).
Step 3 : Insurance Needs Calculations
We also calculate the insurance needs of the client so to safeguard their family. We recommend the client to buy pure risk cover plan i.e. term plan to get high life cover at relatively lower cost.
Step 4 : Portfolio Review and recommendations
The next step is to review the portfolio so to eliminate the low performing investments and suggest the right asset allocation as per the client’s risk profile and investment horizon. This review help to get more from the existing investments and also to reduce the risk component from the portfolio.
Step 5 : Retirement Plan
Finally Retirement Plan is created after reviewing your existing portfolio. This Retirement Plan is based at your inputs given at the beginning of the plan creation. Here, You need to answer few questions like:
- When I wish to take retirement?
- How long will I live?
- What are my present monthly expenses?
- What are my current investments for the purpose of retirement?
- Do I have enough contingency corpus?
- Do I have adequate life cover?
- Do I have sufficient Medical cover?
- Will I get income from any other source in my retirement days?
These questions and step by step guide to retirement Planning will help you to plan your retirement in a smooth way. If wish to take professional help, feel free to get in touch with us.
We are a Certified Financial Planner based firm.
You can schedule a call or write a email at info@bestinvestindia.com.
You may also call us on +91 8178594989.
