Start Planning For A Financially Stress Free Retired Life

2019/02/25

Conjure a happy picture of your life post-retirement. Living a relaxed life free of worries with loved ones and having all the time in the world to indulge in activities that you missed out on earlier.

Unfortunately, this picture turns scary for many Indians during the actual retirement period. Even after working for donkey years, financial insecurity continues to haunt retired people. Many are financially dependent on children and there is a constant struggle to compromise with the standard of living.

So, is it possible to live a financially stress free retired life? Yes, very much, if it is planned properly. For this purpose, we will address two questions here.

1. When to start saving for retirement?

2. How much retirement corpus to accumulate?

The answer to the first question is NOW. This is irrespective of whether you are in your 30s or 40s or 50s.Many people start giving a serious thought to retirement planning only in their late 40s or early 50s. This is because there are many other goals to take care of at different life stages.

For instance, an individual in his early 20s or 30s will typically save for buying a flat or a car or marriage, then in 40s to fund for his children’s education and in 50s to save for their marriage.

The social fabric embedded in Indian families and communities is such that parents are not absolved of their financial responsibilities even after their children’s marriage. I have observed umpteen cases where parents have contributed their retired funds in buying a separate flat for their married and working children!

After funding for all these life goals, most of the Indians are left with only employee provident fund (EPF) or pension money.Unfortunately, many people associate PF/pension funds with retirement corpus. Many also tamper with it in the interim working period to achieve short term goals.

With increasing life expectancy and inflation, the accumulated EPF is unlikely to suffice for the post-retirement period. So the sooner you start to save and invest for your retirement, the easier it will become to achieve the corpus target.

For instance, to arrive at a retirement corpus of Rs.50 lakh, Mr.A aged 25 (retiring at 60) will have to invest Rs.5,758 every month. However, if he starts to invest for retirement from the age of 35, his monthly cash outflow will be higher at Rs.10,058 (assuming inflation at 5 per cent and investment return at 9 per cent).

That brings me to the next question about calculating the retirement corpus.The foremost thing you need to do is to determine your year of retirement and life expectancy.Then, estimate your monthly expenses post-retirement.

Some expenses will reduce or cease to exist altogether like home loan EMI,life insurance premium, commuting expenses, etc. At the same time, medical expenses may observe a surge.As a rule of thumb, you may assume post-retirement expenses to be 75-80 per cent of your present monthly expenses.

After making an estimate of your monthly outgo, adjust it for time value considering an average inflation and investment rate to arrive at a corpus figure. Remember,no one can make an exact estimate because of changing macro indicators like inflation rate and investment return.

These coupled with your medical condition post-retirement can impact your monthly outgo. You also need to bear in mind the tax implications of your long term funds invested for retirement.

Arriving at a future value of your corpus will provide some indication and get you going. If you are not comfortable doing the retirement math, seek professional help.

A certified financial planner (CFP) will help you in arriving at a corpus estimate.He will also suggest you suitable investment options to achieve the corpus target which will balance your returns and risk appetite. So plan your retirement wisely and make your golden years an enjoyable stage in life.

Photo Credit: retirement-income.net

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