The concept of retirement planning is fast changing in the recent days. Gone are the days where everybody works upto the age of 60 , gets a decent pension/PF/Gratuity and lives rest of his life on this income. This was possible because of assured returns and relatively low inflation. Now lots of changes are happening in retirement planning.
- Lot of employees prefer to retire early due to high work pressure and related stress. They want to live a stress free life after retirement, which was not possible during the working period.
- Most of the employees are not getting a guaranteed pension. PF accumulations are withdrawn and consumed during change of jobs and gratuity may/may not be available depending on the service conditions.
- Returns on investments have come down and pensioners will find it difficult to live only on interest income.
- Longevity has increased and a retiree lives for a longer period, in some cases, even more than his service period.
- Inflation is on the higher side and purchasing power is coming down drastically.
- Most of us are thinking that retirement planning can be done at the advanced age of 40 -45.But this is the biggest mistake in retirement planning.
- Modern life style is creating a lot of diseases which require to be treated. Medical costs are increasing higher than the general inflation which makes life difficult at advanced stages.
- Joint family system is almost disappearing and nuclear families are on the rise. Children are staying away for better job opportunities, so retirees can no more be dependent on them. In the absence of any government sponsored retirement income, it has become a great concern, how to create our own retirement income.
But we can overcome all the above issues and can create a good income for our retirement and have a decent life after retirement if we follow a disciplined savings pattern during our working span.
Retirement Planning – Steps
- Find out how much you need after retirement in the current value. This requires an analysis on how the requirement changes after retirement. Your expenses for children education, their marriage, home loan EMIs etc. will be over by the time you retire. Assume that children are settled and staying separately. You have to provide for a driver, house maid and extra medical cost during this stage. An above average urban family of 2 (husband and wife only) requires around Rs. 30000/pm in the current situation if they have their own house to stay. Depending on the life style, you are maintaining now, it can be lower or higher.
- Now let us see how to calculate the retirement requirements
Assumptions: Current age – 35, Retirement age – 55, Life expectancy- 75 years. Post retirement Investment Return – 2% above inflation (mainly in conservative debt investments)
Retirement Planning-Expense Assumptions
Monthly Expenses after retirement in current value-Rs. 30000/pm
Value of Rs. 30000/- at 6 % inflation after 20 Years-Rs. 96000/- pm
Amount required at age the age of 55 to ensure inflation adjusted monthly expenses to ensure same standard of living upto the age of 75-Rs. 1.9 Cr
Don’t get alarmed by seeing the huge amount required. There are ways and means to reach this by systematic and disciplined savings during the next 20 years. We will continue this topic in the next mail.
Have you done Retirement Planning for yourself???