You may have dreamt of moving to Goa for your retirement. Or you may want to spend your days exploring the world. Maybe you have also planned to retire at 50. Whatever your plans, you have to prepare for them financially. Time flies, and before you know it, you will be approaching the age of retirement. Towards the later years, you should not find yourself ill-prepared.
Here is a short guide on how to create a financial plan for your retirement.
Life expectancy and the impact of inflation
According to a study published in the Lancet journal, life expectancy in India has risen from 59.6 years in 1990 to 70.8 years in 2019 . This means that you need to plan for a much longer retirement period than you might have anticipated.
Inflation is an important consideration as it eats away the value of our money. Even the lowest inflation rate has a negative impact on our spending power. Take a product that costs Rs 120 today. In 25 years, at an inflation rate of 6%, the same product will cost around Rs 515. So that ballpark amount you have in mind just may not be enough. You have to ensure thatretirement corpus supports you financially throughout the retirement years.
Identify sources of income
Many Indians rely on traditional saving instruments when it comes to retirement planning. But apart from these, mutual funds can help as well. They can offer good returns with less risk than direct market trading. With mutual funds, even a
moderate amount invested each month will utilize the power of compounding to build a corpus of money. Your mutual fund investment portfolio should be well-diversified with a healthy mix of equity and debt instruments.
Use a retirement calculator and start investing early
To plan successfully, you need to have a specific retirement corpus amount in mind. Use a retirement calculator to estimate the corpus you would need to maintain your lifestyle.
Using the Nippon retirement calculator, here is a table illustrating three people of different ages and their retirement age targets. They all have a life expectancy of 85 years. The assumed inflation rate is 6%. The assumed rate of return on investment before retirement is 15%, and after retirement is 10%
|Name||Age||Retirement age||Number of years left for retirement||Current monthly expenses||Monthly expense on retirement||Required corpus on retirement||Monthly investment||Lump-sum investment|
|Reena||27 years||65 years||38 years||Rs 30,000||Rs 2,91,639||Rs, 3.02 crore||Rs 1314||NIL|
|Lokesh||37 years||60 years||23 years||Rs 43,000||Rs 1,70,334||Rs 1.87 crore||Rs 7208||Rs 50,000|
|Girish||30 years||50 years||20 years||Rs 40,000||Rs 1, 32,408||Rs 1.54 crore||Rs 9102||Rs 90,000|
In the illustration, Reena chose not to invest a lump sum amount and instead would invest every month using a Systematic Investment Plan (SIP) to achieve her target corpus. On the other hand, Lokesh and Girish opted to invest via lump sum and SIP investments to achieve their target corpus. But, of course, how you choose to invest is dependent on your financial constraints and life circumstances. It is, however, recommended to start your retirement planning early in life, because with age, your liabilities and financial burdens may also increase. It will help to start accumulating the retirement corpus as early as possible.
To sum it up, the significant factors to consider when planning retirement are:
⮚ Your current age and your target retirement age
⮚ Life expectancy
⮚ Estimation of your current and anticipated post-retirement expenses
Create a retirement planning investment portfolio
With your retirement corpus and other details in hand, you can start investing. You can now create and maintain an investment portfolio geared toward retirement planning. When you are younger, your portfolio can be skewed more towards equity, which will help you build wealth faster.Your portfolio must include investments that act as a hedge against inflation. They must balance risk-return. As you age and have more responsibilities on your shoulders, you may want to add more debt instruments to lower the overall risk. Assess your risk appetite periodically and adjust your portfolio accordingly.
The bottom line
It is never too early to plan for retirement. But if you do find yourself late, don’t lose hope. Start now. Use a retirement calculator, draw up an investment plan, and start investing today for a peaceful and stress-free retirement.
Disclaimer: This calculator is provided to enable you to plan your retirement and aid an estimate for the retirement benefit. It is designed only for information / education purpose. The results presented by this calculator are hypothetical and basis the information / inputs provided by you and guides you to plan your retirement and importance of savings for your retirement benefits. Kindly do not consider this as an investment advice or direct or indirect solicitation for the scheme or the performance. While utmost care has been exercised in preparing this calculator, Nippon Life India Asset Management (NAM-INDIA) , Nippon India Trustee Co. ltd / sponsor or their respective directors, employees, affiliates or representatives do not warrant the completeness or guarantee the accuracy of the information and will not be responsible for any liabilities, losses, damages arising out of the use or in respect of anything done in Nippon India of the calculator. The calculations provided through this calculator shall not directly or indirectly be construed as solicitation of scheme the performance of the scheme. Request you consult your financial advisor before making any type of investment.
The information/ illustration herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, affiliates or representatives (“entities & their affiliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.