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Save early for a stress-free retired life
Published On , 19 Jul 2017 By ET Wealth
Retirement is one stage in life which simply cannot be wished away and everyone will stop working one day. The pay cheques will stop coming, but the living expenses won't end but keep rising due to inflation. Worse, some of the more critical expenses like healthcare will be growing faster than the overall inflation. The sooner you start saving for that phase of life, the more comfortable your retirement will be.
Nothing can be worse than a long period of old age where you are gradually losing prosperity and then eventually entering poverty.
However, a bit of planning and disciplined investing is important to build a substantial pension corpus. The uncomforting part is that even after building a large retirement fund, managing it after retirement remains a continuing challenge because one does not know how long one would need the corpus.
HOW MUCH SHOULD ONE SAVE EACH MONTH?
A definite answer is impossible to guess because it's all in the future. But if you can answer a few questions, you can arrive at a reasonably good number. So take out your financial planning note book to work on this.
To arrive at how much you would need during your retirement days, may be you can calculate how much you would require if you retired now. Through the rate of inflation has come down a bit, we can still calculate with 8 per cent as the annual rate of inflation.
If your current expenses are say about Rs 35,000 per month and if you retire now you would need about Rs 25,000 per month, the annual expenses add up to Rs 3 lakh. So, to maintain at least the same level of life style 25 years from now, at 8 per cent rate of inflation, you would need about Rs 20.5 lakh per year.
Now, every year from then on you would need higher amount, again at the rate of 8 per cent. So in year 26th, you would need about Rs 22 lakh, in year 27th about Rs 24 lakh, and so on. If you live for 20 years after your retirement, you would need to spend a total of about Rs 9.4 crore. The numbers might be numbing, but there is very little imagination here. It's all basic mathematics involving some reasonable guesses. So if you have to face this reality someday, it is better you start preparing for it now. You can blame it all on inflation. If the rate of inflation is 6 per cent, you need to spend much less than the Rs 9.4 crore figure, which is Rs 5.9 crore.
DO's AND DONT's
Remember the main objective for a retirement planning is to make your later life tension free. So prefer not to take excessive risks with your investments. You can take some risks when you start, but as you grow older, reduce the risks. Spread your risks by proper asset allocation
Set investment Goals and track your portfolio regularly to check if you are on track. If not, consider revising your plans and make changes
Be disciplined, nurture the habit of making a regular contribution and try never to divert from the set path
Try to increase your investments to your retirement corpus every year as your salary increases
Discuss with your financial planner regularly. This should help you learn about your plans better, and will help you quickly correct any diversion from the set path and give you peace of mind
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