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To build retirement money - Start early and be disciplined

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IN CASE of retirement planning it is said `the earlier the better', however, it is never too late either. While the awareness for retirement planning is increasing, most of us delay investing for it. Starting at an early age can significantly enhance realisation of an individual's dream to achieve financial independence in the golden years.


Starting early gives you the benefit of time, which coupled with the power of compounding, enables you to create a sizeable corpus that can enable an individual to take care of expenses after retirement.

 

The table above illustrates how retirement planning can be done at different ages to generate a similar income once you turn 60.

Though the amount required to be invested is more if you delay your planning, the key word is `regular investment'. It is only through regular disciplined investments that you can put aside a corpus that will generate enough income to enable you to live your life comfortably after retirement.

How do I plan for my retirement?

 

Retirement planning can be done in 3 simple steps:

Step 1: How do I calculate my expenses post retirement?


Take into account your current expenses and factor in aspects like inflation, increased medical costs, vacations, gifts for family, etc. You will then arrive at an amount that you will require for living comfortably once you have retired. You need to keep in mind that inflation will cause your expenses to increase (even if you are spending on the same items). One can eliminate costs like children's education and rent, if you own a home.


Step 2: What will be the savings pool I need to build?


Once you have an idea of your expenses, you can accordingly establish the quantum of amount (corpus) required to be built -the amount that you need for meeting the expenses. This savings pool will be created taking into consideration the inflation factor.


Step 3: How much do I need to save now?

Depending on your financial status, determine the funds that can be put aside for building the desired retirement corpus. Start saving now so that you have time on your side and can enjoy the power of compounding.

For example, if a 35-year old person wants Rs 50,000 every month for meeting expenses after retirement, he needs to start planning now.


A corpus of Rs 75,00,000 will be required to generate the desired amount. For this purpose, one needs to invest Rs 10,000 every month in a retirement plan.


How should I choose a retirement plan?


Studying the features and the charge structure of a retirement plan is important.


Ideally, selecting a plan that has a low charge structure will enable you to contribute more towards your investment. A good retirement plan would: Provide returns that beat inflation. Give you the flexibility to choose your investment strategy as per your risk taking ability.

Protect your capital from market fluctuations.

Inculcate a regular saving habit ­ to ensure the corpus is built in an uninterrupted manner.

Money maths How to plan for retirement at different ages to generate a similar income at 60 If you were to start saving at the age of (in yr) 35 50 You will need to save money for (in yrs) 25 10 The amount you will need to invest p.a. 1 lakh 5 lakh Your corpus at the age of 60 will be 67 lakh 72 lakh Pension you receive for self, then wife after which corpus is returned to children/ beneficiary 4.5 lakh p.a 4.8 lakh p.a

Happy Investing!!

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