You are in your late 60s, you have earned all your life, you have provided best education and life to your children and they are well settled in their life. You are enjoying your retired life, spending your time meeting with friends and family. You are over the monotonous routine of rushing to office, working all day and returning back home half dead and repeating the same routine every day. Isn’t this too relaxing a life? This relaxing dream can come true, if you start to plan for your retirement as early as possible. Your financial position determines a lot about your retirement stage.
Planning your retirement is not easy task because of various uncertain factors associated with it. Job security, growth of economy, inflation, returns from investments, and rising medical expenses are some of the factors that can hamper your financial planning for retirement.
Value of Rs. 1 Crore-
Rs. 1 crore is huge amount that is often talked about in India, particularly after the launch of Kaun Banega Crorepati. This show made millions dream about being a crorepati. Lots of schemes today, promise the policy holder to make them a crorepati by the time they retire. Many financial institutions have successfully conveyed that 1 crore is a benchmark for your retirement planning. The truth is that while planning your retirement, no amount is enough, not even 1 crore. You have to face the rising inflation, medical expenses and many other unknown factors that will require money.
Case Study of Retirement Planning-
Mr. Sharma works at a software firm as team leader and earns Rs. 1, 00,000 per month. His monthly expenses on an average are Rs. 50,000.
He plans to retire at the age of 65, thus he has almost 30 years of active professional life ahead. He has to save enough money in the coming 30 years so that he can have a peaceful retirement till age 85, which means the savings he does in next 30 years will only make him survive for 20 years from the date he retires. He has to carefully analyze the inflation rate and the returns on investment possible.
He will need almost 60 per cent of current expenses as his monthly expenses when he retires. Thus, he will need Rs 30,000 per month (which is the current value of his future mothly expenses. We need to consider the rate of inflation to get the nominal value of expenses that he will need after retirement) or 3, 60,000 per annum.
Considering the inflation rate to be 7 per cent and return on his investment and savings at 8 per cent. It is wise not to put your entire retirement money into risky assets; you can put a part of it in the risky assets zone.
Considering inflation, the value of Rs. 3, 60,000 on the present day will be equal to the value of Rs. 27, 40,000 after 30 years. Thus, he will need Rs. 27.4 lakh per annum when he retires. If we assume his life span to be 85 years, then he will need this for 20 years. So, here is the calculation:
|Money Needed to Save for Retirement|
|My Requirement at Retirement||30,000|
|How Much Money I Need to Save Every Month to Achieve this?|
|Number of Years Remaining||30|
|Need per month post retirement||30,000|
|Need per annum post retirement||3, 60, 000|
|Projected life post retirement (years)||20|
|Rate of Interest for discounting post retirement||8%|
|Value of per annum need when you retire||2, 740, 412|
|The multiple factor for GP||0.9907|
|Sum of money needed in the year of retirement||47 ,948 ,299|
As per the calculations, Mr. Sharma will need 4.8 crore im his account to survive till the age of 85.
Is 1 Crore enough?
So, it is crystal clear that Rs. 1 crore is not enough to maintain a comfortable lifestyle post retirement. It is in fact less by a huge margin of 80 per cent. Rs. 1 crore though sounds to be a large number, it is still not enough due to high inflation rates and lack of social security. This can work for those who have low income level or if someone has other source of incomes as well.
Planning your retirement is a complex process and thus you need to be careful while planning, executing and monitoring your retirement plan. Start to save for your retirement as early as possible and as much as possible. Make regular and disciplined investments to multiply your hard earned money. The money you save or invest today, will lead you to steady post retirement life.