Have you estimated your Post-Retirement Expenses?

If you are selecting to read this article, your retirement countdown clock is ticking away. In your busy schedule, do you get to listen to it? If yes, what are you doing about it? Or if you are among those who take refuge in golden retirement myths like “I am too young to bother about it” “my living expenses will be lower when I retire”, and my children will take care of me” and so on? I am sorry here; to these people and urge them to stop reading this article and get back to work themselves.

 

Today’s Scenario

 

Today, a person retiring at 58  or 60 can expect to live well beyond 80. This means in a work life spanning about three and a half decades, you need to have stashed away enough to last more than two and half decades when there will be no cheque at the end of the month. You will have to create one through wise investments throughout your work life. In India, the government and corporate world do not provide old-age support, and mandatory retirement savings such as GPF or EPF as the case may be, don’t take you far. The days of fixed or rising company and government pensions have been over.

 

Thus, the regular pay cheque needed in retired life requires self-directed investments. So, how do you prevent the ticking retirement countdown clock from becoming a fuse to a retirement bomb?  Finding the answer is the key to formulating a successful retirement plan. This may fairly complex process. Now before you roll your eyes and yawn, let us tell you that it is, however not such a difficult thing to do if you follow a few simple steps.

 

Make your retirement roadmap

 

Before you begin estimating your retirement corpus for your rainy days, firstly you need to know where your finish line is? In this case, this is your retirement age. For instance, the later you retire, the more time you have for your money to grow. If you have less time left, you will need to save more.

 

Many of us might have already started saving for retirement. If we have too little, then your retirement savings could run out too soon and leave us in penury. If we save too much, we would be forgoing unnecessary amounts of current consumption and living below the standard we can afford. Also, ad hoc saving, often just to save taxes, is not conductive to achieve long-term targets. So, you need to know how much you have to save regularly and where you need to invest to reach your goals.

 

Estimation of Retirement Needs

 

This follows from your retirement age and your current monthly expenses. For instance, today’s monthly expenses of, say, Rs30,000 would balloon to about Rs96,214 in 20 years at an inflation of just 6 percent. Simply put, Rs 3.60 lakh of current yearly expenses balloon to Rs 11.52 lakh in 20 years because of inflation. You need to a corpus of about Rs. 2.10 crore to generate Rs 11.54 lakh each year to live next 25 years. To generate this corpus, you need to save about Rs 2.60 lakh each year.

 

Don’t be afraid above tedious calculations, you can calculate your own post- retirement yearly expenses for this white elephant plan with the help of following table that would not give you any more excuse not to start saving right away.

Future Retirement Expenses Table

Years to Retire	With 6% Inflation	With 8% Inflation	With 10% Inflation
5	1.3	1.5	1.6
10	1.8	2.2	3.2
15	2.4	3.2	4.2
20	3.2	4.7	6.7
25	4.3	6.8	10.8
30	5.7	10.1	17.4
35	7.7	14.8	28.1

Continuing with the same example of X as above that , if your current expenses are Rs 3.60 lakh p.a. and by multiply with 3.2 (20 years to retire) would calculate Rs 11.52 lakh for your first year retirement expenses with 6% inflation. Also Read :How Saving Rate affects Retirement Corpus at different ages?

 

Evaluate your options to invest

 

You need to choose the investment options that will take you to your destination. For those looking for exposure in equities, your retirement portfolio may comprise equity mutual funds or ETFs. The debt portion of your portfolio may largely comprise Public Provident Fund (PPF) or National Saving Certificates (NSC).  A word of caution is here that any liquid nature of these investment instruments could prove as a deterrent to long-term planning and there might be a tendency to use the corpus for other life-stage needs, compromising on retirement planning.

 

Last but by no means least; ensure that you and your family members are covered by a health insurance plan. Keep an adequate life cover, preferably through a term insurance plan of at least 10-12 times of your annual income.