Retirement Planning: Financial freedom at any age is important. Be it a young age or retired! Financial freedom comes when you have passive income that can help you sustain yourself for life.
Such an income can be created through generating income sources or creating a retirement corpus, returns from which can be used for retirement planning.
But for that you must know how much money you require to live a comfortable post retirement life.
Know which are the key elements to know the retirement corpus and how much a 33-year-old with monthly expenses of Rs 35,000 needs to have in their retirement corpus if they wish to retire at 60 and want corpus till 80.
Also know what monthly SIP and lump investment amounts they need to achieve that target.
Key elements to know retirement corpus
The person needs to calculate the amount required from their retirement age to the expected life.
If a person is 30 years old, wants to retire at 55, and needs an amount till 80 years of age, they require money for 25 years.
They need to know that corpus. But what will that amount be?
Retirement amount
Because of the inflation rate, yearly expenses rise.
The same thing will continue post retirement also.
So, first of all, one needs to know how much they need in the first year for their retirement.
They need to calculate the amount for all their retirement years based on the inflation.
Since the inflation rate keeps changing, they can take the historical rate of the previous 20 or 30 years.
What can be next step?
Once they know the amount, they need to know their investment amount to achieve that target.
They also need to know the rate of return to achieve that target, and based on that, they can know their retirement corpus.
Where can they invest?
This is an important step since the success of one’s retirement planning will depend on their return from this investment.
Prior to the retirement phase, one can keep a mix of market-linked and non-market-linked investments.
However, in the retirement phase, it is better to invest in fixed interest rate options.
Retirement corpus for 33-year-old with Rs 35,000 monthly expenses
We will calculate here the retirement corpus and monthly SIP and lump sum investments to achieve that for a 33-year-old with Rs 35,000 monthly expenses.
The person wants to retire at 60 and needs the corpus till 80 years of age.
What will be inflation rate and investment growth rate?
We will take the inflation rate as 6 per cent.
Pre retirement annualised return will be 12 per cent and post retirement return will be 6 per cent.
The years for investment in this case will be 27.
We are assuming that the person has no other investments for their retirement.
Future monthly expenses (at 60 years of age)
Rs 1,68,782 (at 6 per cent inflation).
Estimated corpus required for retirement
Rs 4,05,07,680
Lump sum required to achieve this target
Rs 18,99,551
Monthly SIP amount required to achieve target
Rs 16,624
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)