As a working professional, you must be having a dream of comfortable and satisfying life after retirement. Moreover, you would like to accomplish certain aspirational goals such as building a villa or buying a premium luxury sedan.
All such goals require a lot of money. Hence, you need to understand the importance of retirement planning. Having a sizeable savings corpus can give you signs that you are ready to retire.
However, if you are not sure as to how much money do you need to retire, here’s the complete ready-to-retire checklist for you. It will explain the 10 essential steps to calculate how much money you would need post-retirement.
Process to Calculate Retirement Savings
No doubt, retirement planning is not as simple as thought. This requires regular tracking of the difference between the savings corpus you need post-retirement and your actual accumulated savings right now.
If you are confused by the difficult calculations of retirement planning, here’s a comprehensive ready-to-retire checklist. The entire process of retirement calculation has been simplified into 10 different steps required to ascertain your financial needs and figure out how much you need to invest every month to fulfil your long-term goal.
Step-1. Classify Monthly Expenses
The first step is to categorize all your monthly expenses into two different heads — those that will continue throughout your life and those expenses that will last only till your retirement. For this, you need to make a list of all your expenses. Now, bisect these expenses into two heads:
- Regular and recurring expenses e.g. kitchen expenses, electricity bills, laundry, clothing, and maintenance of the house. These will continue even after your retirement.
- The expenses that may last only till your retirement, e.g. formal (office) clothing, office conveyance, home loan EMIs, child’s education expenses, etc.
This is important because certain regular expenses such as medical costs may drastically rise after retirement. After knowing all the regular expenses you can manage them wisely.
Step-2. Chalk Out All Income Sources After Retirement
Next, you need to trace all your sources of your income after your retirement. This may include:
2. Insurance plan pay-outs or pension policy pay-outs
3. Income from a house property you own
4. Capital gains, if any
Step-3. Calculate Net Income Required For Retirement
Now, calculate the net requirement by subtracting the amounts in Step 2 from those in Step 1.
Step-4. Calculate the Inflation-Adjusted Income Needed In Retirement
Your current income will rise eventually with the inflation. You may take the conservative figure for long-term average inflation as 5%. Based on the inflation, you need to calculate the income you’ll need after retirement.
Step-5. Calculation of the Savings Corpus Needed After 60
Your savings requirement depends upon your life expectancy, investment portfolio, and the expectations of returns from investments. Multiply your value from Step 4 to know your actual savings requirement. This may be higher for younger age groups due to expenses compounded with inflation. But, they have more time to cover up their requirement.
Step-6. How Much is the Current Saving Corpus?
Add up all these income sources to get the figure of your current retirement corpus:
1. EPF & PPF pay-outs2. NPS pay-outs3. Bonds4. Pension plan pay-outs5. Equity gains6. Income from Debt funds7. Bank deposits8. ULIP gains9. Insurance policy pay-outs10. Other sources
Step-7. Calculate the retirement corpus compounded overtime
Next, you need to know how much your savings corpus will grow at a compounding rate. This figure can be higher can be low for younger age groups as they have invested for a long time.
However, the compounding growth will be higher if your retirement plan is more equity-oriented, such as a ULIP with a higher ratio of equity in the portfolio.
Step-8. Calculate the extra savings corpus needed
Based on the total retirement corpus needed at 60 and the compounding growth of your existing corpus by the age of 60, you can get the additional corpus you need by subtracting the figure in Step-7 from that of Step-5.
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Step-9. Figure out the monthly saving requirement for extra savings corpus
Based on the value ascertained in Step-8 and your regular expenses, you can easily figure out how much you need to save monthly so as to reach the extra savings corpus target.
Step-10. Add all the current investments and find out Additional investments needed
Finally, you need to tally all your regular retirement investments. Now, subtract this amount from the value you derived in Step-9. You can now easily know how much extra contribution monthly you need to do.
Investment Options for a Good Retirement Corpus
Based on your savings requirement and risk appetite you may opt for one of the following retirement plans:
i. Guaranteed Savings Plan
If your concern is to save more and increase your savings at a high rate, you may buy the Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Savings Plan.
This plan offers you a risk-free investment opportunity. You may also opt for the Milestone Withdrawal Option available under this plan. In this option, 20% of the available fund value as of the date of payment, shall be given to you at the end of the 10th Policy Year and every 5th year thereafter. These are tax-free withdrawals.
ii. Guaranteed Income4Life Plan
If your concern is to earn a regular tax-free income post-retirement, Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Income4Life is a good option.
You can choose this pension plan if you are 40 years or above. Here you can choose between the long-term income option of 15 or 20 years, or you may choose to earn a lifelong income till 99 years of age.
iii. Invest 4G Plan
This is a smart ULIP that offers you the Century Option with a systematic withdrawal feature. Hence, you can get life cover for 100 years period. Moreover, all your gains from a ULIP shall be tax-free u/s 10(10D) of the Income Tax Act.
What’s more, you will get the fund value even if you survive the policy till 100 years of age. It is an investor-friendly plan.
So, these are a few lucrative retirement plans that can easily help you fulfil your retirement goals.