Retirement planning: Have you ever wondered how much money will I need after retirement? So you are not alone. Retirement planning can seem difficult because the future is filled with countless ‘what ifs’. But in reality, the amount required for retirement can be estimated with some simple things. Such as expenses, inflation and for how long the money will be needed.
Start with your monthly expenses
The easiest way is to understand how much you spend today every month. Such as ration, electricity-water, transport and other expenses. Suppose it is ₹50,000 per month. After children become self-reliant, some expenses will reduce, but medical and traveling expenses may increase. So find a true average.
keep inflation in mind
This is where most people make a mistake. ₹50,000 today will not be ₹50,000 after twenty years. If inflation remains 6%, spending will approximately double every 12 years. That means, if you retire after 20 years, the same expenditure can be around ₹ 1.6 lakh per month. This will be the amount with which you will be able to maintain your standard of living.
For how many years do I need the money?
The average age of people in India is increasing. Therefore, after retirement, consider preparation for at least 20-25 years. If your expenditure is ₹1.6 lakh per month, i.e. around ₹19-20 lakh annually, then the total amount for 25 years comes to around ₹5 crore. You may feel scared after hearing this figure, but there is no need to worry.
Add up your savings returns
Your money will not remain locked in the bank or safe. You will get returns on retirement savings. Let’s say returns of 6-8% from a combination of debt and equity investments. With this, you will not need to deposit as large an amount as seen above. Today there are many online retirement calculators, which give accurate estimates by adding inflation, interest rate and years till retirement.
calculate back from target
Now suppose your target corpus is ₹5 crore. Now see how much you will have to save every month from today to reach this amount. This can be distributed in the form of SIPs or annual contributions. Such as EPF, NPS, PPF or Mutual Fund. The sooner you start, the easier it will be. A person investing ₹ 25,000 per month at the age of 30 can achieve the same target for which even ₹ 50,000 per month may be less at the age of 40.
Retirement corpus is not about reaching a ‘perfect number’, but about making enough preparations so that you can live with dignity and independence. Start small, keep saving consistently and review your plan every few years. The sooner you start, the less you will have to worry about the day your salary stops coming.