Want to do better for your retirement without becoming a retirement planning expert? Lean on the simple and basic concepts of retirement savings. And before we dive into these amazing concepts let’s recall a few old age wisdom nuggets which hold even in modern times:
Retirement is ultimately just another financial goal and like any other financial goal, it depends on the simple mathematics of expenses and savings. You need to manage your expenses and increase your savings to achieve more with your income.
Thus, following these principles, while planning we will stay realistically conservative. Also, these principles will be corroborated by the retirement concept again and again as you will see.
1. Early Retirement means Longer Distribution Period
Retirement goal is not a static goal situated at one point in time. It is a continuous goal, which begins the moment you start earning and continues till you live. The whole retirement journey is divided into two phases
Nowadays, ‘early retirement’ had been quite a buzzword among Gen-Y. However, what does early retirement mean?
If it means for you to hang your boots and start living your money, you will soon find it difficult for the following reasons:
Thus, early retirement should mean that you will start working on something closer to your heart. Starting a business enterprise and making it profitable has been one of the popular early retirement plans.
2. Inflation vs. Pension
You should expect that inflation will affect your expenses, even after retirement. However, as your lifestyle expenses slowdown in the later years, inflation will have negligible effect. But in the early years, the effect of inflation is much higher.
Thus, the chance of your corpus depleting much faster than you expect is higher in the early years. So, while investing for your retirement goal, you need to ensure that you can accumulate more than your estimate. This will need you to:
Best online ULIP plans have the features to allow you to not only invest in good equity funds but also, manage your portfolio with proven strategies. ULIPs like Invest 4G from Canara HSBC OBC Life can easily double up as your tax-free retirement plan in India.
3. Make Sure Your Savings Grow with Your Income
When you plan your retirement, you are planning as per your current income and expenses. But, both will likely change over time, and if stars are properly aligned, income will grow more than the expenses. Your retirement savings should grow along with your income, and if possible more than the income growth.
For example, you receive an increment of 10% on your annual income. First thing you need to do, before going out on the party, is to increase all your investments by at least 10%.
In the first chart of accumulation and distribution phase, we kept investing the same Rs. 10,000 every month for the entire period. The result was the corpus did not even last for the next 20 years.
However, if you increase your savings by just Rs. 500 a month each year, you get enough corpus to last more than 30 years. Not only that, but you can also leave a significant legacy for your children.
Withdrawals are same in both the estimates and growing at the same rate each year.
4. Savings Ratio vs. Time to Retirement
This is one of the most interesting concepts of retirement planning. This concept gives a simple connection between your savings ratio for retirement goal and your ability to replicate the same income.
For example, if you are earning Rs. 1 lakh a month, and save 10% of your income towards retirement, you can replicate the same income within 30 years.
Similarly, Image 3 gives you more years to retirement based on other savings ratios. Rate of return of the investment plays a role in these estimates, and we have assumed 8% p.a. ROI for our calculation.
You have known that ‘the more you save the faster you will achieve your financial goal,’ but this image should solidify your knowledge into firm belief with numbers.
PS, if you save 90% of your income, you can have enough money to replicate the same within the next 10 years.
5. Minimizing Post-Retirement Expenses
While we have been trying to maximize our savings and returns so far we should not miss the beat on expenses. Growing expenses can easily outmanoeuvre your income growth and even most meticulously laid out plans. So, what you do?
You figure out which are the possible major expenses post-retirement and you take measures to minimise them. For now, these could be the most common major expenses on most post-retirement budgeting sheets:
So, taking care of your health will possibly resolve at least two of these. However, you should also keep the senior citizen health insurance handy, just in case the uninvited knocks on your health. For home maintenance, moving to a more manageable property could be recommended. But, there could be so many more solutions.
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