Are you thinking of how happy and work-stress-free your mind will be once you retire? But are you prepared for that sudden drop in lifestyle?
Well, retirement can be a blissful phase if you plan it right. So, in this write-up, we have shared some tips that might help you create the best retirement plan you will need to get a pension of at least ₹30,000 per month. Read on to know more.
Estimating Retirement Corpus
Here’s a step-by-step process to help you create the best retirement plan:
Estimate Life Expectancy: The duration your retirement corpus must sustain you depends on this calculation. The average life expectancy in India is 75 years, though individual variations may occur based on factors like health and lifestyle choices.
Account for Inflation: Accounting for inflation is essential when estimating your retirement savings because it gradually diminishes the purchasing power of your money. A practical guideline anticipates an annual inflation rate of approximately 6-7%.
Calculate Monthly Expenses: Assess your expected monthly expenses during retirement. Apart from the ₹30,000 you want to generate from the corpus, consider other expenses like housing, healthcare, travel, and hobbies. Sum up these expenses to get your total monthly expense in retirement (let’s call it X).
Annual Expenses: Multiply X by 12 to calculate your retirement expenses.
Calculate Future Value (FV): Use the future value formula to determine the corpus required for a pension of ₹30,000 per month. The future value formula is:
FV = (Monthly Expense * 12) * [(1 + inflation rate)^number of retirement years]
For example, if you plan to retire in 20 years and expect a 5% inflation rate:
FV = (₹30,000 * 12) * [(1 + 0.05)^20]
Calculate Corpus: Calculate the retirement corpus by considering your life expectancy. The corpus required to generate ₹30,000 per month throughout your retirement would be:
Retirement Corpus = FV * (1 + expected annual return)^number of retirement years
Expected Return on Investment: Anticipated investment returns are crucial in determining the required retirement corpus. The choice of investment strategy will dictate the amount needed. For instance, stock investments may offer the potential for higher returns but also come with higher risk. In contrast, investing in mutual funds may yield comparatively lower returns but involves less risk.
Account for Other Income Sources: If you expect to have other sources of income during retirement (e.g., pension, rental income, social security), subtract those amounts from the total required corpus.
Best Retirement Plans to Achieve the Goal
To achieve your desired pension amount, consider the following to come up with the best retirement plan:
Pension Plans from Insurance Companies: These plans offer a guaranteed pension for life, and you can receive the pension in a lump sum or installments. Some popular pension plans from insurance companies in India include LIC Jeevan Akshay, HDFC Life Click 2 Retire, Tata AIA Life Insurance Fortune Guarantee Pension Plan, ICICI Prudential Signature, Max Life Online Savings Plan and more.
Government-Sponsored Schemes (NPS and EPF): The National Pension System (NPS) and Employee Provident Fund (EPF) are popular government-backed retirement schemes. NPS allows voluntary contributions with diversified investment options, while EPF is mandatory for employees in certain organizations, with both employer and employee contributions.
Annuity Plans: Annuity plans offer a guaranteed income stream during retirement. These plans assure a lifelong income, utilizing your retirement savings. Popular plans in India include LIC Jeevan Shanti, HDFC Life Pension Plus, and ICICI Pru Guaranteed Income Plan.
Systematic Investment and Long-Term Approach
Here are a few reasons why you should consider SIP investments for your retirement planning:
Long-term commitment: SIPs promote consistency and commitment, allowing you to start with small contributions and stay invested longer. This fosters financial discipline and helps accumulate a substantial retirement corpus over time.
Power of compounding: Regular investments through SIPs harness the power of compounding, where returns are reinvested, leading to exponential growth in your investment. Starting early and staying invested for the long haul maximizes the benefits of compounding.
Rupee cost averaging: SIPs mitigate market volatility by using rupee cost averaging. For instance, when the markets are down, people buy more units; when the market is again high, very few units are bought. Thus averaging out the cost of investments, reducing the impact of short-term fluctuations.
Convenience: SIPs offer ease and convenience as they do not require extensive market research. You can initiate and manage your SIP investments online, making them accessible from home.
Flexibility: SIPs allow you to adjust your investment amount according to your financial situation, making it adaptable to changing circumstances and financial goals.
Note: In June 2023, the cumulative SIP collection amounted to ₹14,734 crore. Currently, Indian Mutual Funds have approximately 6.65 crore (66.5 million) SIP accounts, enabling investors to make regular investments in various Indian Mutual Fund schemes.
Conclusion
Retirement planning is the key to a worry-free and fulfilling golden phase. Embrace strategic investments, harness the power of compounding, and tailor your plan to suit your aspirations. Secure your financial future and savor the bliss of retirement!
Follow our WhatsApp channel
