An essential element of financial planning is setting retirement goals that many investors tend to overlook. Retirement is not just about facing old age; it is about meeting essential and daily needs in the face of loss of income. Being able to decide how much money we would need 30-40 years later can be a tad difficult, especially, while looking at today’s unsure times when inflation is at an all-time high. Despite the inherent disorder and difficulties involved, assessing the ideal retirement corpus is possible. What you need is a bit of focus on today’s income, evaluating how much you would need to spend on the same post-retirement, possible expenses, and then deciding on the correct method to arrive at the much-needed retirement corpus.
While estimating the amount that you must have in your retirement fund, you must remember that this is the money that you and your spouse would need to take care of living expenses while you would be having no access to regular income like today. The current lifestyle must also be considered while calculating the same.
The following steps will help you decide your estimated retirement corpus and how much you must save to achieve it.
Take a gross evaluation of your post-retirement expenses
To find out how much you would need post-retirement, look carefully at your monthly outgo. You cannot get rid of your daily utilities and bills on essential items like groceries, utilities, rent, etc. Moreover, with old age, you are more at risk of falling ill and paying higher premiums on your health insurance policies, thus, mandating higher expenses. Though tax deducted at source is also likely to fall owing to loss of income or no income at all, you must be prepared for possible unforeseen expenses too.
Evaluate your post-retirement income
Being retired need not translate to a stagnant life. Many retired people use their experience to get into consulting roles while some turn into small-scale businessmen. Assess the road ahead to gauge the income you would possibly earn post-retirement. Also, you must consider the pension plans that you may have invested into. A regular pension every month would be a reliable income source that you must not forget. Check if these income sources would be enough to meet your expenses. If not, plan alternative income sources now to meet the deficit.
Calculate the future value of money
Are you aware of how your money gets devalued over time? You can use the Rule of 70 to calculate how much time it would take for the value of your money to be halved after considering the inflation rate. For example, the current inflation rate is seven per cent. This means that the value of your money would be halved in 10 years, i.e.;70/7. So, if you are planning to retire after 10 years and would need at least ₹1 crore corpus, you must save and invest in a way that you earn a minimum of ₹2 crores from your investments.
Use the retirement calculator
If you are not sure how much you must invest to earn a particular retirement corpus that you may have in mind, it is best to put in the details of your investments and your investment tenure to arrive at the value of the corpus.
Remember never to limit your retirement corpus. You are saving for an unforeseen future, which means that you must aim for a bigger retirement yield. Apart, include other fixed-income options too while assessing how much money you wish to accumulate in your emergency fund.
Take stock of your savings
You must not have allocated your entire earnings to stocks and mutual funds. Take note of the fixed-income instruments included in your investment portfolio. The interest earned on them constitutes your savings that you can fall back on in case your mutual funds do not yield expected returns or undergo corrections in the case of a sudden market fall.
Plan for added requirements
It is not enough to plan for 10-15 years after retirement. Life is uncertain, and you do not know what lies ahead. This means that apart from planning your retirement corpus, plan something separate that helps you pay for sudden and additional requirements in the long run. This planning must be done irrespective of the robust savings and investment options included in your portfolio. Remember that you are planning for a future that you are not sure of. At least, you must be certain of your savings and earnings that will keep you afloat in case of sudden emergencies.