Getting a fix on the retirement corpus is the first big step; choice of investment matters too

Retirement planning is an essential part of financial planning. The corpus you build for retirement should be able to help you sustain your current lifestyle after retirement as well. Add to this the worry of inflation, and you realise the amount you need on retirement is much higher than what is determined by a simple math. People who have already retired should look at investing the retirement corpus in avenues that give regular, safe returns which will last for the entire lifetime of the person. But if you still have some time left for retirement, you must take steps to maximise your retirement corpus. What should you consider while building your retirement plan?

Estimate retirement number by taking into account various factors:

The first and most important step is to estimate how much retirement corpus you will need when you retire. Though this seems like a pretty straightforward question, you will need to consider several factors to estimate this. You must consider your present monthly expenses and analyse how much of this is on necessities and how much on luxuries. Calculate how this amount will grow, taking into account inflation and other commitments which might come up. Most people wish to sustain the same lifestyle they have before retirement, even after they retire. It is advisable to pay off all your loans before your retire; so remember, you will have to exclude EMIs when you calculate the post-retirement expenses. You will also have to factor in the possible increase in medical expenses, as these expenses tend to increase as you grow older.

Example:

Suppose your current monthly expenses are `60,000 and you expect inflation to be 6% per annum till you retire and even post retirement. You plan to retire 20 years from today and expect to live for another 20 years after you retire. If you expect to invest your retirement savings in various avenues giving you returns of 8% per annum, you will need a total of `3.8 crore to sustain the present lifestyle even after you retire. The final amount which you calculate may look very high and unachievable. But remember, this is not impossible. Just as how your expenses go up every year, so do your income and returns on your investments. Proper planning and choice of investment avenues can easily help you achieve this number. If you still think it is too high, you may have to make some adjustments to your lifestyle, post-retirement. Your post retirement income may also be supplemented with additional income sources you do not have at present – regular pension from pension funds you invested in, property rental income etc.

Build your corpus step by step:

It is known that the earlier you start investing, the better it is for your money to grow. This is because of the effect of compounding on your money. During the initial years of your career, you may not be able to set aside huge funds for retirement, as your income itself may not be very high. Nevertheless, you must inculcate the practice of investing any amount, however small, towards retirement. As the years go by and your income increases, you must steadily increase your contribution towards retirement funds.

Choose the best investment mix:

How you save is as important as how much you save. You may be saving a lot of money, but if this is channelised into investments yielding low returns, your money will not grow. For this purpose, your asset allocation is very important. Equity investments give the maximum returns over a long term. When you are young, you must invest the maximum in stocks and mutual funds. As you grow older and near retirement, your asset preference should be shifted towards debt instruments. Gold is another asset class which has given excellent long term returns. The investment mix you choose will change in different stages of your life depending on your age, goals and financial conditions. Do your basic research and consult a financial planner to choose the best options.

Do not touch your retirement corpus before you retire:

Your retirement funds are meant for you after you retire. If you dip into these savings even before you retire, the corpus will not grow as planned. Hence, do not touch this corpus, unless absolutely necessary. You may disturb these funds only when you have used your other saving funds. Saving is always rewarding, and it is never too early or too late to start saving. Retirement savings should be a priority. A structured and disciplined financial plan can help you lead an easy, stress-free retired life.