How to create a Retirement plan which works

(Last Updated On: September 5, 2016)

Retiirement planning

Some of the top questions we get from people in our Financial planning sessions are as follow

  1. Why do i need a retirement plan, i have enough savings
  2. How much money do I require to live a comfortable life once i retire
  3. How do i retire as early as possible
  4. How do i retire at the age of 40
  5. I save 10K per month, is it enough for my retirement plan
  6. What is the best way to save money and retire early in India
  7.  How much money i require to maintain the same lifestyle as today once i retire
  8. What is the best retirement plan

This is first in series of posts through which I will try to  answer some of these questions , most of the advise here is tailored for Indian users

So before we get started, lets get some basic definitions out of the way

What is a retirement plan

Simply put Retirement plan is set of financial planning activities/steps you undertake to ensure financial security and a comfortable after retirement life, A good retirement plan should have all of the following

  • How much do I need for retirement
  • Where will the money come from
  • Where do i invest to get to what I need

So how do i start building a great retirement plan

  • Start right away , Its never too late , early you start you get more time to grow your money
  • Ensure you have other key financial obligations checked in your financial plan, these include but not limited to following: Emergency funds, Health Insurance, Other key goals house, Marriage, kids education , kids marriage etc.
  • Find your monthly expenses if you are not married, try to forecast your expenses post marriage
  • Take a premium on the monthly expense of around 20 %, generally you will under-estimate expenses
  • Provision for Inflation , this is the biggest elephant in the room, and the unknown devil you need to provision against, here take inflation on higher side from CPI inflation numbers you see in newspapers, that’s because inflation that might impact you can be different like health, travel, leisure can have higher inflation.
  • Figure out the right asset portfolio for your retirement so that you get the best possible return, with reasonable risk
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Creating a sample plan

Let say your current age is 30 years, current monthly expenses are  Rs 50,000 per month, you plan to retire at 60 years, and average life expectancy is 80 years ( so you will live till 80)

So number of working years you have are 30 , now assume that you have separately taken care of all other financial obligations like children marriage, children education, contingency etc, we will go ahead and calculate your retirement  corpus , for simplicity we will assume that inflation is 7 %, we will also assume that your annual expenses will be 80 % of your expenses today

  Step 1 :Retirement Corpus calculations

Retirement corpus

So total Retirement corpus you require is 66,372,688 ( Approx 6.6 crores )

Step 2: Calculating Monthly savings to achieve this corpus

Monthly savings-Retirement

 

6 big mistake to avoid while creating a Retirement plan

  • Underestimating impact of Inflation
  • Underestimating impact of compounding, hence starting late
  • Under estimating health insurance required resulting in unplanned health related costs
  • Getting debt/equity ratio right in your retirement portfolio , right mix can take you far
  • Getting contingency funds right
  • Underestimating other financial obligations
  • Never rebalancing the plan you made, its always good to periodically review your plan

For more details on things to avoid in a retirement plan read my post here

So where do we go from here, well you can start with getting help on retirement planning , by creating a custom plan for your self created by our proprietary algorithm here.

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