Retirement planning in India: start early, retire happily
Have you started the process of creating your retirement fund? If you haven’t, your reasons might include feeling too young, wanting to enjoy your current earnings, or lacking knowledge about investments. Now, the follow-up question is, “At what age do you envision retiring?” and the frequently heard response is often “45.”
In this blog, we will tackle your reservations regarding retirement planning and lay out a roadmap that you can adhere to in order to establish a solid retirement corpus.
Retirement often doesn’t receive the attention it deserves among young individuals, primarily because it lies at least two to three decades in the future. However, it is crucial to understand why having a retirement plan is imperative. Here are three compelling reasons:
- Longer Life Expectancy: People are now enjoying extended lifespans, necessitating the need to plan for a more extended post-retirement life, which can stretch well into the age of 85 or beyond.
- Inflation: Inflation, the gradual increase in the overall price level of goods and services, is a significant factor to consider. This means that what costs Rs.100 today could potentially cost Rs.1000 or more after 40 years assuming the inflation rate to be 6%, eroding the purchasing power of your savings.
- Absence of Government-Sponsored Social Security: Unlike some countries, India lacks a robust government-sponsored social security system that adequately supports the elderly population. Relying solely on such systems may not provide the financial security needed during retirement.
In light of these factors, it becomes clear that planning for retirement is not only wise but also essential to secure a comfortable and financially stable future.
Why should you start early?
Before we delve into the retirement roadmap, let’s examine some scenarios that highlight the importance of initiating your retirement savings early.
Consider scenario 1: Person A starts saving ₹10,000 per month at age 25, while Person B begins saving the same amount at age 35. Assuming both plan to retire at the age of 60, the retirement corpus of Person A accumulates to a substantial ₹5.8 crores, whereas Person B manages only ₹1.8 crores. This demonstrates a significant 70% difference in the accumulated savings between the two.
Now, let’s explore another scenario: Person A commences investing at age 25 and ceases at 40, while Person B starts at 35 and continues until age 60. Person A has invested for 15 years, whereas Person B has committed 25 years to their investments. At age 60, Person A will possess a retirement corpus of ₹4.8 crores, whereas Person B will have accumulated just ₹1.8 crores. This contrast can be attributed to the power of compounding.
As you can see above, starting early has its advantages. If you have age on your side, you can start your retirement planning early and grow your wealth through compounding.
Building a retirement plan
Retirement planning revolves around two main aspects i.e., how much retirement corpus you will need when you retire and how much money you need to save every month to retire comfortably.
Let us look at the steps you need to take to plan your retirement:
Step 1: Set retirement goals
Start by defining your retirement goals. Determine when you want to retire, the lifestyle you aim for during retirement, and expected expenses, including housing, healthcare, and leisure activities.
Step 2: Estimate future expenses
Calculate future expenses, considering essentials like housing and healthcare, along with discretionary spending. Account for inflation, typically around 6-7% annually.
Step 3: Gauge lifespan
Estimate your expected lifespan based on family history, health, and lifestyle, planning for a longer life to safeguard against outliving your savings.
Step 4: Include income sources
Consider other income sources during retirement, such as pensions or rental income. Deduct these from your estimated expenses to determine your needed retirement corpus.
Step 5: Utilise retirement tools
Use online calculators or seek financial advice to calculate your retirement corpus, inputting your goals, expected expenses, and inflation rates. You can also use this sheet you calculate your retirement corpus.
Step 6: Factor in investments
Account for investment returns in your corpus calculation. Decide on investment types, like stocks or bonds, and estimate annual returns, keeping risk in mind.
Step 7: Prepare for emergencies
Allocate a portion of your corpus as an emergency fund to handle unexpected expenses or crises during retirement.
Step 8: Regularly review
Frequently review and adjust your retirement plan to accommodate changes in life, financial goals, and market conditions, ensuring you stay on course.
Conclusion
As you embark on your journey towards financial security in retirement, maintaining your organisation and making informed decisions is crucial. Whether you are starting your retirement planning or addressing other financial needs, you can rely on FloatR to streamline the process and keep tabs on your progress.
FloatR empowers you to easily oversee your retirement objectives, assess various scenarios, and confirm that you’re heading in the right
direction to achieve your retirement corpus goals. Your retirement aspirations are well within reach – let FloatR help you turn them into reality!
