Q. I am 40 and working in an IT company. I want to retire by 55. How much money should I save to meet my expenses after retirement?
Early retirement can mean different things. Are you planning to retire early and never work again? Or do you want to be financially independent but continue to work as per your desire? It all depends on your desires and your choices.
What do you want to do after retirement?
- Do you wish to travel and explore the world?
- Want to build a business or form your own company?
- Start freelancing as a hobby?
- Build a contingency fund to take care of medical requirements?
- Move to a nature-friendly place, away from the city and cut down your cost of living?
- Want to leave behind your estate for your children?
Analyse your responsibilities and expenses
You need to identify your current expenses and categorise those into critical and discretionary. This will give you an idea how much retirement corpus you need to build by age 55 so that you can continue to enjoy the current lifestyle even after retirement. You will also need to provide for life-stage expenses like healthcare, emergencies, and changes in lifestyle. Once you are clear about the goal, you can work out your monthly savings target to reach that goal.
Remember that your retirement kitty will have to fund all your expenses. The returns you obtain must beat inflation, so that your purchasing power does not degrade with time. You need to explore various investment instruments in the market to ensure this. These may vary from the risky (like equity) to the stable (fixed deposits).
If you don’t have the expertise to analyse and structure a well-diversified portfolio, it is best to consult an expert. After all, your hard-earned money requires utmost care.
Understand your risk appetite
Each of us has a different attitude towards and the ability to take risks. It is important to figure out your financial risk appetite.
- Are you the sole bread earner in your family?
- Do you have any debts to clear?
- Are you a high-risk taker?
- Does your heartbeat rise when your portfolio declines or there is market volatility?
- Does worry about money keep you awake at night?
You can have a peaceful sleep only when you know that your money is safe and can generate the returns you need for your post-retirement future. The money decisions you take must align with your risk profile. There are free risk assessment tools available online to help you assess your risk capacity. You can make your investment decisions accordingly.
Scenarios can vary over time and upset your assumptions. This makes it imperative to use the expertise of a financial advisor to guide you right from the start of your financial journey towards retirement. This will ensure you attain financial freedom and live your life the way you want.
International Money Matters Pvt Ltd is a 20-year-old SEBI registered financial planning-cum-investment advisory boutique. Please click here to find out more.
