While most Indians are financially unprepared for retirement, many are unaware of the gravity of the situation. In a recent poll, just 20% of respondents said that real retirement planning should begin before the age of 30. On average, respondents surveyed were unable to visualize the retirement corpus that they would need at the time of retirement, as well as how to obtain it.
According to financial experts, people’s present financial requirements frequently obstruct their retirement planning. Most people’s income is spent on repaying debts for cars or homes, leaving them with less money saved for retirement. Many people also take money from their Employees’ Provident Fund (EPF) accounts to cover large costs like weddings, kids’ education, down payments on housing and car loans, and so on.
Identify your Retirement number?
Most people do not know how much money they will need to live comfortably after retirement. Individuals, particularly those having several decades until retirement (maybe those in their 20s or 30s), should strive to save a sum equal to 30 times their yearly expenditure as their retirement corpus. This yearly expenditure should include all of your rents, EMIs and any other debt repayments as well. (I have tried to take the yearly expense as the figure for calculating the retirement corpus, as the expenses are those that you have to do, irrespective of your age or financial situation).
For example, if your monthly expense is Rs. 1 lakh (which is equivalent to 12 lakh per year), then you would require Rs. 3.6 crore to retire peacefully today. The notion that expenditures fall with age is erroneous. Most individuals anticipate a reduction in lifestyle and spending demands upon retirement, resulting in decreased real cash flow requirements. However, this may not be the case, as medical bills are the single most significant expense for retirees. And, given the trend of rising medical expenditures, senior citizens’ monthly expenses will only continue to increase in the coming years.
If you are in your 20s:
You can profit from an early start. Set your retirement goal and calculate how much you’ll need to save to attain it. The earlier you begin saving, the longer your money has to grow. Even if you can just save a tiny amount each month, the magic of compounding will benefit you in the long run. People in their twenties can invest more money in risky assets like equity mutual funds and stocks since they have a longer investing horizon. You can also use tax-advantaged retirement savings schemes like the EPF and the National Pension System (NPS) to build money for retirement.
As many personal financial experts advise, you should purchase health insurance to protect yourself from unforeseen medical bills that might drain your nest egg of retirement resources. Also, create an emergency fund to tackle any unforeseen expenses that may arise.
If you are in your 30s and 40s:
People in their 30s and 40s reach a certain amount of personal and professional stability. From this point forward, they must continue to save for retirement. You should be earning steadily at this age. Set a clear aim of your retirement, and seek expert support if necessary. Strive for a corpus that will allow you to continue your existing lifestyle.
Gradually boost your investment to 20-25% of your income. After determining your risk tolerance, diversify your assets among equities, equity mutual funds, gold, Infrastructure Investment Trusts (InvITs), and Real Estate Investment Trusts (Reits). Keep contributing to NPS while increasing your payments to EPF and Voluntary Provident Fund (VPF). Consider ways for quickly settling your outstanding debt obligations, if any.
If you are in your 50s:
If you’ve fallen short on your retirement plans, this is the decade to catch up. Get a precise idea of your retirement cash requirement and change the amount you save as needed (you can now clearly do this without confusions, as you are not many years away from your retirement, as you reach your 50s).
If you’ve fallen short on your retirement plans, this is the decade to catch up. Get a precise idea of your retirement cash requirement and change the amount you save as needed.
With time, your retirement strategy should shift slightly toward debt instruments and your portfolio should become less risky overall. You could look into pension plans, which provide annuities and can give an assured revenue stream for life.
The 50s are an important decade for retirement savings. However, people who continue to contribute to their children’s expenses (such as for their education or marriage) or look after aging parents may find it difficult to increase their savings for retirement. Parents in this age group should avoid going excessive with their children’s marriages, especially if you are still catching up on your own retirement savings.
Reconsidering extending one’s working years is a wise move for those who are behind schedule on their retirement goals. Set aside around 30% of your salary for retirement savings, and prioritize debt reduction. Seek expert guidance if need be. Increase your EPF contribution, repeat PPF, and investigate choices such as large-cap and hybrid mutual funds. As you near retirement, transfer the majority of your assets to fixed income instruments.
What is the ‘100-minus Age’ rule for retirement?
Limit investments in equities to ‘100 minus your age’. That is, retired individuals over the age of 60 should invest no more than 40% of their portfolio in equities and 60% should be in debt instruments. This regulation can serve as a starting point for individuals with significant assets who can count on interest and dividend income.
Investors with smaller portfolios may benefit from a larger allocation to equities, but only if their risk tolerance allows.
