Retirement Plans

It is often said about retirement 'It's nice to get out of the rat race, but you have to learn to get along with less cheese’

More often than not, less cheese ends up with no cheese at all!
Retirement planning is the important task of deciding how one will live once he/she retires. Retirement planning involves the consideration of a number of factors, including at what age you hope to retire, how much money you will need to cover the living expenses coupled with the things you plan to do once you've retired, and where your money will come from.
In short, retirement planning is planning your finances for the period of life after you stop working.

Need for retirement planning:
Let's start by looking at why retirement planning is needed in the first place:

  • Longer Life Span

The advancement in the medical field as well as improvement in the quality of life has meant that Indians are now living a longer life than before. India's average life expectancy is slated to increase to over 75 years by 2050 from the present level of close to 65 years. Lifespans have been increasing due to better health and sanitation conditions in the country. However, the average number of years of employment has not been rising commensurately. The result is an increase in the number of post-retirement years without regular income

  • Decline in the Joint Family System

With the Joint family system breaking down into nuclear families, more and more people prefer to live on their own thus leaving the elders to cope for themselves.

  • Rising Medical Expenses

With an increase in age, the need for medical expenses also rises and very often there is inadequate financial support to meet the high expense.

  • Early Retirement

A lot of people desire to retire much earlier than planned. However this is possible only when adequate retirement planning is done so that the individual has the backup of a safe and stable financial future when he/she plans an early end to their working life.

Why Retirement Planning is necessary?

Longer retirement years:
Average life spans are increasing in India and hence, the retirement years are likely to be longer..With the rise in inflation you will need more money to live in comfort.

  • Financial independence post retirement:
  • Earlier, people could depend on their children to take care of them post retirement.
  • However, as a modern individual, would you not like to maintain your financial independence post retirement also?
  • Inflation:
  • Inflation is an important factor. Post retirement, you need a regular income to ensure that your expenses can be met.

How to plan for retirement?
Here is a small way to do your Retirement Planning:

  • Estimate your current annual expenses.
  • Adjust the annual expenses to account for factors impacting if you were to retire today.

No of years to retirement.

  • Using inflation rate calculate Future Value of this annual expense. This will be your annual expense in the first year of retirement.
  • Estimate the investment returns on post retirement corpus basis the asset allocation in the post retirement period.
  • Estimate the likely inflation (increase in cost of living) post retirement.
  • Calculate the Retirement corpus
  • Estimate the investment returns during the accumulation phase or pre-retirement period basis the asset allocation.
  • Estimate the amount to be invested every year till retirement to achieve the retirement planning goal

When to start for Retirement Planning?
"You are never too young to start for retirement planning" the famous saying goes.
So plan for your retirement as early as possible so that you can create a good amount of corpus for yourself at the time you retire.
There are various factors that needs to be taken into account to do retirement planning for oneself like cost, inflation, market volatility etc as these factors eat up the money saved by you.

Did you know?
If your current monthly expenses are ` 30000 p.m., after 20 yrs you will require `80,000 p.m. to maintain the same lifestyle.*
Assuming Inflation rate at 5% p.a.

Let us see an example here:
Mr. Mohan started investing Rs 4000 per month at the age of 30 and his friend Mr. Sohan started slightly late at the age of 40. He invested Rs 6000 per month, when both of them retired at the age 60. Let us see how much they have accumulated at age of 60.


Mr. Mohan

Mr. Sohan

Age at which the investment began (yrs.) 30 40
Monthly Investment Amount (`) 4,000 6,000
Investment Tenure (yrs.) 30 20
Total Amount Invested (`) 14,40,000 14,40,000
Corpus at age 60 (`) 60,01,181 35,57,683

@ 8% p.a.

Sohan despite increasing his monthly investment to Rs.6000 is not able to match up with Mohan who is investing Rs 4,000 p.m.. Given that they both invest in the same investment plan with similar returns, there is only reason for this – Mohan’s 10-year head start. The 10-year head start ensures that after 30 years, Mohan’s savings will be 69% higher than that of Sohan. From Sohan’s standpoint, a 10-year delay means that his savings will only be 59% of Mohan’s savings.