Rupakumar Pradhan, CFPCM, CWM®

Personal Financial Advisor

Practical Views on Money, Finance & Life .....

How Much to Save for Retirement – Are You Ready?

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How Much to Save for Retirement – Are You Ready?

How Much to Save for Retirement – Are You Ready?
July 10
12:20 2017

 

I used to interact with many young professionals who come to us for personal financial advice. It’s a question that remains key in the interaction and not to bother about retirement at this age – say 25 years.

Boss, just started my career and want to enjoy my life.

Abhi Dilli bahut door hai…………Delhi is still far away. Retirement is still far away. Not to plan for retirement now.

It’s too early for me to worry about retirement. That’s a common mindset of a lot of young people, including many of those we try to reach with our retirement education efforts. Yes, retirement may be a long way off and feels even longer for someone just starting their working years, but there are a couple of reasons that retirement planning is particularly important for young people.

What is Retirement?

Retirement is a transition from work life to life after work. Retirement is the beginning of a new stage of life.

From a financial planner perspective, retirement is when I stop depending on my work, skill and expertise to earn my bread, and fall back on the assets that I have created give me adequate funds to manage my day-to-day living or lifestyle, after keeping aside money for emergencies so that it will last for my lifetime.

First, there’s the bad news. The reality is that changes in the retirement landscape mean that young people will need to save more than their parents and grandparents did.

The concept of retirement and retirement planning in India has undergone a paradigm shift in last 15 years. Most Retirement opens a whole new chapter for many individuals, when they pursue the ‘work they love to do’ and convert their hobbies to professions. There’s an increasing trend of individuals opting for voluntary retirement as they reach the other side of 40s and live for over 85 years.

Life Expectancy & Its Impact on Retirement

Increasing life expectancy and shrinking work spans means a longer retired life. Are you ready?

A long and healthy life is a blessing, provided you have saved enough for your sunset years. Just 20 years ago, the average life expectancy at birth in India was 53 years.

Today it is 71. Life expectancy at 60, the age at which most working Indians retire, is higher at 77.2 for men and 78.6 for women.

As medical technology improves over the next 20-30 years, you can expect to live to 90, if not a 100.

Our generation will live longer than previous ones due to improved medical and healthcare, implying the need to gather enough funds that can sustain longer life. This also implies that the healthcare needs and expenses are likely to haunt us.

Inflation & Its Impact on Retirement

Inflation affects all of us but has a greater impact once you are no longer working full-time and can’t adjust your savings to accommodate the rising costs. Two things, we have to check

Inflation reduces your purchasing power.

Inflation consumes your savings faster.

A monthly household expense of Rs 20,000/- per month (Say year 2017) for a 30  years old today can surge to nearly Rs 152,245 per month (year 2047) with inflation rate @7% p.a. by the time he is 60.

You can expect your annual expenses to double every 10 years if the rate of inflation remains steady at 7%.

How much money do you need for retirement?  If you are about to retire, you have 1 crore, and is that enough?  How much to save for retirement?

All these questions in your mind.

Just for your understanding, please see the example.

Say Mr. A’s age is 30 years and his yearly household expense is Rs. 240,000/- per year (Say year 2017). He wants to retire at the age of 60.  Life Expectancy is 90 years and Inflation rate @7% p.a.

He needs Rs. 18,26,941/- per year (Year 2047) to maintain same life style in the 1st year of retirement years. To maintain the same life style during retirement years (60 years to 90 years), the required amount per year will also increase till 90 years due to inflation rate.

How much money does he need for his retirement? 

Guess it?

If Fixed Interest Rate is 8% per annum, he needs Rs. 4,78,43,492/- (4.78 crore) of retirement corpus.

Yes, It is 4.78 Crore.

To achieve this 4.78 crore, he has total 30 years (360 months) time to save so that he creates the required amount.

If If you want to create Rs. 4,78,43,492/-  in 30 years with 12% portfolio return p.a., you have to invest Rs. 13,554/- every month ( 360 months).

If If you want to create Rs. 4,78,43,492/-  in 30 years with 10% portfolio return p.a., you have to invest Rs. 20,990/- every month (360 months).

If If you want to create Rs. 4,78,43,492/-  in 30 years with 8% portfolio return p.a., you have to invest Rs. 31,889/- every month (360 months).

If If you want to create Rs. 4,78,43,492/-  in 30 years with 6% portfolio return p.a., you have to invest Rs. 47,391/- every month (360 months).

Start planning for retirement early in life to make the most of the power of compounding.  As per my opinion “Most people in the age group of 25-35 don’t understand the importance of retirement. The more they delay, the more they have to contribute later,”

“The question isn’t at what age I want to retire, it’s at what income.” – George Foreman

Some Questions to Ask Yourself:

Do I want to retire?

How do I want to spend my time in retirement?

How will I handle not having to go to work?

How much will I miss the social contacts and friends at work?

Will my friends also be retired?

How much income will I need in retirement?

Am I psychologically ready to retire?

Should I consider semi-retirement or a second career?

What impact will my retirement have on my family?

What if I don’t retire and instead keep on working like I am now?

Will I have to get a part-time job to make ends meet?

The best retirement planning strategy is to have a financial plan in place. Monitor your retirement accumulation progress against the plan’s benchmark and make adjustments as needed in areas such as the amount you are saving, your investment allocation, and the lifestyle that your resources will support.

Keeping these key points in mind, it’s advisable to seek guidance from a financial planner for his expert views on your financial plan. Retirement is not just about age, it’s highly dependent on the kind of lifestyle you’re living and wish to continue living.

Happy Retirement!

I am a CERTIFIED FINANCIAL PLANNERCM. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do.

If you have a question about your own financial situation please connect with me.  I’d be delighted to try to be of service.

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Want to Become a Crorepati with nominal income? Read it

About Author

Rupakumar

Rupakumar

Mr. Pradhan has over 20 years of experience in financial services industry. He was previously working with leading Life Insurance Companies, Broking Firms, Distribution Company, Financial Planning Company and Health Insurance Company. He has cleared several NCFM modules & is also AMFI Certified. His expertise is in Comprehensive Financial Planning, Technical Analysis, Portfolio Management, Investment Advisory, Wealth Management & Business Development.

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