30 Aug 2022
We now know the importance of planning for one’s retirement.
In case you missed it, here are some of our previous articles - We often ignore planning for this goal - Here’s why it should be a priority, Retirement Planning – the what, why, and when and Retirement Planning – the how, where and which decoded.
Now that we have understood the basics and importance of retirement planning, here are five things you could keep in mind while building your retirement corpus:
1. Age and Life Expectancy
Two things are in play here – the age at which one is planning to retire, and an estimate of the number of years post retirement for which they need funds.
An early retirement, say, at 40 years, means that not only does an individual have fewer years to build a retirement corpus, but also needs to accumulate funds for several years – maybe 35-40 years, if the life expectancy is 75-80 years.
Retiring at 60 years, on the other hand, would mean that not only does one have more years to accumulate the funds, but they also need to build the corpus for fewer years – say about 15-20 years.
2. Rate of Inflation
One would typically start building their retirement corpus 20-30 years before they retire. When taking your expenses into account, it is extremely critical to factor in inflation.
This means that, for instance, the purchasing power of ₹50,000 will be significantly lower by the time you retire, if we remain in an inflationary environment. Estimate the monthly and annual expenses you would need accordingly.
3. Rate of Return
You would not withdraw your entire corpus as soon as you retire. This means that while you withdraw a little, the rest of it remains untouched – but preferably invested. This corpus should continue to earn for you, although you could consider investing in instruments which are not high on risk.
4. Wealth Distribution
Several people wish to distribute their wealth or savings in this phase of their life. This needs to be considered when deciding on the amount of corpus you would need.
5. Regular review
Planning for retirement is probably one of the longest goals. While one must choose instruments that are likely to do well in the long term, it is equally important to periodically review your portfolio. If your portfolio is not performing in line with your estimates, you could consider churning it.