help plan for retirement and offer the security of insurance.
Retirement planning is something that you need to start early in life, without leaving it off till your retirement age to find out what you would need to carry on with life. People work for the best part of their lives, and it is only right to expect to retire with dignity and live in comfort, if not sheer luxury. That's what retirement plans are all about – enabling you to plan your investment for retirement income without being bogged down by the pressures of everyday life, especially as you are fast approaching your retirement age. And when you consider the rising medical expenses and increased life expectancies that make people live longer after retirement age, retirement plans assume an urgent proportion.
Whether you would want to wait for your retirement age or you would want to make retirement corpus, effective investment planning would help you get there faster and enjoy life, you could do well to consider a few ideas in retirement planning:
The idea is to first decide how much you would need on a monthly or yearly basis to calculate your retirement plans. This would give you a target to work towards, which would be undeniably true anyway, given that you are already inching forward towards retirement age. Your retirement planning could then be done with a backward calculation. And yes, you would naturally be looking at sustaining a lifestyle that is compatible with your current living standards, considering that your Pension plan should effectively take the harsh reality of Inflation into consideration.
You could calculate how much you would be spending per year and multiply it by a factor of 25. For instance, if you think you would need Rs 1, 000,000 per year, your investment for retirement income should be to the tune of Rs 2.5 crores. If you have such a portfolio for retirement age, you would be able to draw 4% of it for your own living expenses without depleting your investments at all.
That may seem like stating the obvious, but some basic calculations would drive home the importance of what it is like to calculate pension plan, taking inflation into consideration. If, for instance, you thought a corpus of Rs 1 crore would work the magic for you when you have reached your retirement age, think again! Just around 5% of inflation over a period of around 30 years would mean that Rs 1 crore may not be worth much more than Rs 30 to 40 lakhs by then. Also, remember that inflation could eat into interest rates that you get on your pension plans. If you thought 12% was good enough a return, an average inflation of 6% would mean that you would effectively be looking at 6% with your pension plan.
That means much more than what it may seem to suggest in terms of retirement planning. The difference between starting at late 20s and late 30s could be quite staggering, where you may have to contribute twice as much as you would have had to, had you started earlier with a pension plan. Further, starting early would be the best way to take some risks in the initial stages of life – you would not want to think of investment for retirement income in terms of equities when you have started with retirement plans close to your retirement age.