How much money to save for Retirement?

Retirement, I would say be the most awaited period of one’s life. I know who wants to wait for retirement!!!. Everyone wants to be young forever but old age will strike eventually and we all know it is not the most pleasant phase of life.

But if you see from a different perspective it can be the joyful state, let me explain.

Imagine, you are free from all responsibilities: chaotic daily office task, your child expenses, and other responsibilities. You can do anything, which you were not able to because of these responsibilities. You can go for singing, dancing, traveling, mentoring or any social work which you are passionate about in your life.

So for all these excitement to happen, you should be healthy physically as well as financially.

Let’s check what is the current retirement age in different countries –

Given above is the official retirement age in the world. So the question is it necessary to retire as per the official retirement age?

Absolutely no, you can retire at any age. You can retire at 50 or 45 or even at an age of 35 also. But the term ‘Retirement’ has to change to ‘Financially Independence’ and preparation start from a young age.

So, Let’s discuss how we can achieve this retirement or as I may say financial freedom:

Firstly, It requires pre-planning for your retirement corpus.

Follow the below steps to judge how you can generate the fund and how much you require to live freely:

Decide the total amount to achieve:

How much amount you should collect depends on your current expenses. If you want to live the retirement carrying your current expenses including inflation, calculate as below:

  1. Current Expenses per month: This includes  the total expenses you have currently including the household expenses, fuel, travel etc. Here, you can remove the expenses incurred in the child education as they would not be the part of your post-retirement expenses. Also, your household expenses gets removed after retirement if you want to live as a dependent on your children. It’s your choice to include them or not.
  2. Rate of inflation: We can take the average rate of inflation of around 8% annually. This is high-end inflation current inflation for the year 2018 is somewhat around 4%-5%.
  3. Life maturity period: This is the life expectancy period of an individual.
  4. Current Age: What is the current age of the person who started investing.
  5. Retirement Age: The age when you want to start living freely.
  6. Current Investment: Any current investment holdings which can be used after post retirement.

Average life expectancy of Indians is 68.35 years till 2015        – World Bank

Calculate the sum – Now after deciding all the above parameters, its time to calculate the sum required to fulfill the Retirement cycle. You can follow below link to calculate:

Retirement Calculator

Take the below example to calculate the Retirement corpus in the SIP manner. As your age is getting increases the SIP amount also gets increased. So it’s better to start early is the good choice to plan the retirement.

  • Here, Current Age = 30 years
  • Take Retirement at the age of 60 years
  • Life Expectancy = 80 years
  • Monthly Expenses = 25,000 per month
  • Existing Requirement corpus = Nil
  • Inflation Rate = 8%
  • Expected Return on Investment = 12%
  • Total sum required at a time of retirement keeping expenses same = 4.26 crore
  • SIP Investment per month = 12,069

Retirement Calculator

Decide a mutual fund scheme to invest in:

Now its time to invest in the mutual fund schemes based on the age and risk appetite of the investor. Here, in the above example, the investment is in full equity-based scheme as the period of the investment is long i.e. 30 years.

Find the below table depicting the SIP Amount should be invested based on the age of the investor keeping the above parameters same.

If you are starting late, try to keep some part of the debt and rest in equity. In this case, the SIP amount has to increase to fulfill the required corpus.

Also readWhy you should invest in mutual fund?

Switch Schemes as reached the Retirement age:

This is the most important step once you reach the retirement age of 60 years, you will get the sum to make the sum risk and inflation-free investor should invest in fixed return or liquid fund. It’s better to have the fixed interest scheme like Fixed Deposit so that return will beat the post-retirement inflation every year and you can live your retirement similar to your current lifestyle.

Conclusion:

Believe us retirement planning is an art. It requires a lot of planning and discipline. But it’s worth it.

If you are planning for retirement start investing early is the best practice, so that the retirement corpus becomes big enough to sustain the same lifestyle as you are enjoying today.

Thanks, please do comment like/dislike about the blog.

 

Financial Freedom Enthusiast

Spend 6 years in learning Stocks & Mutual funds Investment. A traveler from soul, finance is passion, Investment is hobby.

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