Come, in this article related to retirement planning today, we try to understand this and accordingly prepare it from today to secure our tomorrow. Friends, life expectancy in India at the time of independence was only 32 years. That is, the possible lifespan of a person born in India in 1947 was just 32 years. But now this figure is about 70 years old. And keep in mind that this is the average of the whole of India, which includes crores of people who do not have equal health facilities. If only well-off or middle-class families are talked about, then this figure will definitely reach around 80 years.
- 1 Step 1: First of all make an estimate of your expenses: retirement planning
- 2 Step 2: Find out what your monthly expenses will be at the time of retirement?
- 3 Step 3: Find the corpus required to generate the yearly income you want at the time of retirement: retirement planning
- 4 How Mutual Funds can work in your retirement planning?
Step 1: First of all make an estimate of your expenses: retirement planning
Once the expenses are in a year, divide them by 12 and take out their monthly cost. Such as motor insurance, tourism expenses, etc. Suppose the monthly-average of all expenses comes to Rs 30,000, meaning if you were retiring today, you would need at least Rs 30,000 every month to maintain your current lifestyle!
Step 2: Find out what your monthly expenses will be at the time of retirement?
What you calculated in Step 1 is your monthly expense on today’s date, but you are just 30 years old and you have to retire at the age of 60, that is, after 30 years. So the question arises, what will be your annual expenditure after 30 years?
To find out, you will have to apply the inflation rate. Due to inflation, after 30 years, the value of money that will be reduced today, the movie that we see today for Rs 200, we may have to spend Rs 1500 to watch the same movie after 30 years.
Historically, the inflation rate has been around 6%. If we consider this to be the average for the next 30 years, then after 30 years our monthly expenditure will be:
Rs. 1,80,677 (about one l akh eighty thousand rupees)
That is, you will need Rs 1,80,677 x 12 = 2168124 for the year.
Step 3: Find the corpus required to generate the yearly income you want at the time of retirement: retirement planning
Now think that if you want Rs 2168124 every year, then for this, how big a corpus should you have whose interest can give you twenty-one lakh twenty-eight thousand rupees yearly!
After retirement, if we make a primarily secured investment and assume that we are getting an 8% annual return, then our corpus should be so big that 8% of its interest can give us Rs 2168124 every year.
So, lets calculate basic Simple Interest formula
Simple Interest = Principal * Rate of Interest * Time (years) / 100
2168124 = (Principal * 8 * 1) / 100
Hence Principal = 27101550 (Rs 2 crore 71 lakh). That is, in the next 30 years we will need about two crore seventy-seven million rupees to retire!
How Mutual Funds can work in your retirement planning?
If you have to prepare a good retirement fund, then you have to make an investment that can give you a considerable return despite inflation, as well as something that can reduce the risk of your investment. And mutual fund (MF) is such an instrument that makes both of these things possible.
While investing in MF through Systematic Investment Plan (SIP) reduces your risk through cost averaging, exposure to equity gives you a better return than other financial instruments. Apart from this, MF has two very good features – STP and SWP.
Through the Systematic Transfer Plan (STP), you can reduce your equity exposure systematically when retirement comes to a close and move into debt funds. And in this way, you can build a risk-free retirement corpus.
With Systematic Withdrawal Plan (SWP), you can withdraw money from your corpus monthly, quarterly, half-yearly, or yearly and in this way, you can get a regular income without any complications and paperwork.