Planning for your retirement is a necessity that should not be put off at the last minute. You may have a pension to depend on, but it won’t cover all of the expenses until you know the amount you need to retire. Thus, calculating the corpus you would need to be self-sufficient will help you save up accordingly. So, let’s understand the amount of money you would need to retire without worry and also how to retire early –
Your current monthly expense must consist of things like groceries, medicines, loans, travel expenses, bills, fuel expenses, and vacations, amongst others. But many of these will not exist after your retirement. Thus, you need to sort your monthly expenses into two, which will continue during retirement and others that won’t. Expenses like home loans, travel expenses, work-related costs, education loans, etc., will not continue. So, you can remove them from the monthly expenditure and calculate the sum which you will require.
Now, you need to calculate the expected income you will be getting after retirement. This includes a pension from National Pension System, a pension from your job, corpus from insurance plans, income from other investment tools, etc. You can also include any income that you will receive from a property. The total from this will be your expected income after retirement.
From steps 1 and 2, you know the various expenses of yours and the expected income. Now, you can calculate the income required to suffice you. If your monthly expense is INR 40,000 and your expected income per month is INR 30,000, you need INR 10,000 more for all your expenditure.
Inflation plays a vital role in our lives, making our current savings seem little for the future. Now that you have the required income for your retirement, you have to include the inflation rate. From this, you will be able to work out the future value of your income. The inflation rate can be calculated by taking an average of the long-term inflation rate, as the current rate will mislead your estimations.
You have now calculated the amount required after retirement with the above steps, but you need to see how much you should save for your retirement. Various financial instruments enable you to save for your retirement. If you have already invested in such tools, you have to calculate the current corpus you possess. But if you haven’t started investing, you can begin now. Below given are some instruments that you can consider:
- Life Insurance policies
- Employees Provident Fund
- Public Provident Fund
- National Pension System
- Pension plans
- Mutual funds
- Bank deposits
If you have chosen any tools from the above options, you can calculate how much that amount will grow with a rough estimate. The growth will also depend on what kind of tools you opt for, market-linked, and equity orientated. Investing in equity funds will give you higher returns than most financial instruments.
With figures like the amount you will require at 60 and how much your existing capital will grow by 60, you can estimate the sum you need at retirement.
With all the above steps, you know the money you require, so it is time to determine the amount you need to start saving up. Though you may have ended up with a huge number, there is no need to worry. If you begin saving up at a younger age, you can accumulate the said amount by the time you reach retirement age. This is due to the power of compounding that you can gain good returns in the future.
By adding your current investments, you will be able to calculate how much more you need to invest in getting the required sum in the future.
With this, you can now begin your retirement planning and start saving up. You will also find a retirement planning calculator online to help you with the estimations.