20 Jun 2022
In the first part of this article, we discussed the basics of retirement planning. What it is, why one should do it and when? Let’s get some more insights about this.
There are multiple things that one needs to consider. The kind of lifestyle that they want to have post-retirement, and the funds that will be required for it. One needs to know when they plan to retire, and the number of years after that for which the funds need to be accumulated.
This will help in calculating the future value of their current expenses, annual or monthly, factoring in inflation, and how much you actually need to maintain or make changes in their lifestyle. Once these calculations are done, individuals can calculate the corpus they will need at the age of their retirement.
Based on the number of years they have to collect this surplus, investors can then choose products, the amount to be invested, and its frequency. All these factors need to balance between growth and conserving capital. This portfolio then needs to be monitored on a regular basis, so that changes can be made as and when needed.
If one has about 30 years to build their retirement corpus, they should ideally spend the first 22-25 years building capital, for which products or instruments which can offer high returns are the best suited. Over the next five-eight years, the accumulated funds should then be moved to a product which is relatively less risky, even if the returns moderate.
At the time when the funds are ready to be withdrawn in phases, they should be moved to an instrument which suits this purpose.
Amid several other financial goals that we have, which include buying a home, a car, children’s education and marriage expenses, a vacation or a hobby – retirement planning often takes a backseat.
Given the long tenure that one has to accumulate funds for this purpose, investors can benefit from the power of compounding and must do so.