Throwing caution to the wind is a hallmark of young age. It often adds to the romanticism of youth but one might come to regret the attitude as one advances in years. Retirement planning is one significant aspect of one’s life that suffers due to this attitude. But once years are lost and the realisation dawns at middle age followed by regret, nothing can be done to undo the financial damage that the lost time has caused.
Therefore, let’s find out how one can use a retirement planning calculator to safeguard one’s future.
Use free online calculators
Retirement planning calculators are available free online. If you log on to mutualfundssahihai.com, you will find one such tool that will ask for the following information – current age, desired retirement age, life expectancy, monthly income desired in retirement years, expected inflation rate, expected return on investment (pre-retirement), expected return on investment (post-retirement), existing retirement fund.
Now obviously everyone will have a different of data for the above calculations. But let’s make a few assumptions to find out a given situation.
Begin from the first year
Suppose someone starts working at the age of 25 and will work till the age of 60.
Current age = 25 years
Desired retirement age = 60 years
Life expectancy = 85 years
Monthly income desired in retirement years = Rs 1.5 lakh
Expected inflation rate = 5%
Expected return on investment (pre-retirement) = 12%
Expected return on investment (post-retirement) = 8%
Existing retirement fund = 0
Monthly investment required
If these parameters are set in the calculator, it gives out the following results:
Annual income required immediately after retirement = Rs 99.29 lakh
Total corpus required for after retirement = Rs 17.72 crore
Monthly savings required to accumulate the corpus = Rs 27,561
There is a qualifier to the calculation above. Though the amount Rs 17.72 crore might appear to be a big one, disciplined investments in equity or equity-linked products can make the target more achievable than might appear at the outset. Also, a sound financial advisor can guide you to investments that will fetch bigger returns than the 12% used to project here.
NPS, MF, EPF
There are a lot of avenues such as Employees Provident Fund (EPF), National Pension System (NPS), Mutual Funds to help an individual build a sizeable corpus over time.
The golden rule is to start early. The sooner you start, the less you have to invest since the power of compounding will get time to do the work for you.
Remember it is prudent to consult a qualified financial advisor before choosing the instruments to invest to strike an optimum balance between risk and returns to suit your risk appetite.
Planning for life after retirement is a constant quest for a growing number of Indians. One can only ignore it to one’s peril. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
