Retirement Planning – Have you thought it through ?

This is one of my older articles which i republishing this for the reference of people .

Retirement Planning – Have you thought it through ?

Yesterday during lunch we had an interesting discussion on the need for retirement planning and this is a topic which on my mind for a long time and have been considering different options and tools to arrive at a solution for retirement planning. Realizing that most of us think that retirement is too far away why should i plan for it type of mindset i decided that i should bring awareness about this topic and this article attempts to do the same by considering my own personal example to arrive at a decent plan for retirement . What is retirement ? I believe it means many things to different people . To simplify the definition i would keep it as a state where one is not working in a regular full time job and you would spent your time with things that u are passionate about without having to worry about day to day needs from being taken care of. As the tagline of ICICI Prudential says -> ‘Retirement Matlab World’s Best Jobs’ , do the best job without worrying about financial consequences. Given this as a definition lets get down to do the retirement planning for Mr Joe.

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Name : Mr Pradeep – 30 YEARS

Monthly Expenses : 25 ,000 Rs (excluding the cost of housing).

Retirement Possibilities : 40 YEARS or 50 YEARS (Lets calculate for both)

Average Inflation over the next 10 to 20 years: 6%.

Monthly Expenses at Age 40 : Using inflation of 6% , it would be around 45,000 Rs.

Due to inflation the value of money comes down , so what costs Rs 25k now would cost 45k after 10 years.

Monthly Expenses at Age 50: Around 90,000 Rs.

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Now based on certain reasonable assumptions we have arrived at monthly requirements at age 40 and age 50. Now we should look at various means by which we can earn regular income at age 40 and 50. As we have assumed that at retirement you would not be working in a fulltime job and doing something which u are passionate about lets for a moment assume that you don’t earn too much money doing things u are passionate about (i know we can argue differently , but given that we are talking about something which would happen after 10 or 20 years it is a fair assumption to make that we have no means of income and have an own house to stay in.)

 

So we need to build a CORPUS of fund ! Now lets estimate the CORPUS of money which we need to get a regular income of Rs 45 k or Rs 90k. Again we need to make some assumptions for this.

Rate of Return Expected from CORPUS : 6 %(conservative ,mix of debt and equity)

  • CORPUS Need to Get 45K/MONTH (Retire at 40) : 90 LAKHS CORPUS
  • Need to Get 90K/MONTH(Retire at 50) : 1 CRORE 60 LAKHS.

So now that we know what kind of money that is needed at 40 and 50 years we need to build this corpus of money and how are we going to do the same. By saving regularly right ? (cant think of any other way:) ) so to have a CORPUS which is close to what i have mentioned what is to be done . We need to save regularly either debt/equity , again for this we need to assume some rate of return .

Average Rate of Return over 10 YEARS and 20 YEARS : 8 %

  • To save 90 lakhs of Corpus to retire at 40 years Monthly saving needed : 48000Rs.
  • To save 1 Crore 60 LAKHS of corpus to retire at 50 years Monthly saving needed : 27000 Rs.

Please note that the above saving requirements are just for retirement planning , am not talking about other expenses like childs education , marriage etc etc…. So did the number shock u ???? It did shock me !!! I remember a line from an ad which said retirement planning the earlier the better … The same number would have been much lesser if i had started saving from 21. Hope this short article gives an insight into retirement planning . Remember we are in a generation where GOVT does not take care of you by paying pensions. I envy my father and all Govt servants who get paid pensions from Govt… !!

comments and feedback at avinashmkb78 (at) gmail.com


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