The rule is to have a good retirement corpus you must start as early as possible. This is because the sooner you start saving and investing, the more time your money has to grow. Even if you can only save a small amount each month, it can add up to a significant sum over time, thanks to the power of compounding interest. Let’s understand how to build a retirement pension plan.
How to decide your retirement corpus
To decide your retirement corpus, you need to consider the following factors:
- Your current expenses: This includes all your monthly and annual expenses, such as housing, food, transportation, healthcare, and entertainment.
- Your desired lifestyle in retirement: Do you want to maintain your current lifestyle or do you plan to downsize? Do you want to travel more or pursue new hobbies?
- Your life expectancy: The longer you live in retirement, the more money you will need.
- Inflation: Inflation is the rate at which prices rise over time. You need to factor inflation into your calculations to ensure that your retirement corpus will be enough to cover your future expenses.
- Investment returns: The rate of return on your investments will determine how much money you need to save to reach your retirement corpus goal.
Once you have considered all of these factors, you can use a retirement planning calculator to estimate how much money you need to save for retirement.
Here are some tips for deciding your retirement corpus:
- Start planning early: The earlier you start saving for retirement, the more time your money has to grow.
- Set realistic goals: Don't set your retirement goals too high or too low. Be realistic about how much money you need to save and how much you can afford to save each month.
- Review your plan regularly: As your life circumstances change, such as getting married, having children, or getting a new job, you need to review your retirement plan and make adjustments as needed.
- Seek professional advice: A financial advisor can help you create a retirement plan that is tailored to your individual needs and goals.
Example:
Let's say you are 35 years old and you plan to retire at age 60. Your current monthly expenses are Rs. 50,000 and you want to maintain your current lifestyle in retirement. You also expect to live for 20 years in retirement.
To calculate your retirement corpus, you can use the following formula:
Retirement corpus = (Monthly expenses * Number of years in retirement) / (1 + Inflation rate)^Number of years in retirement
Assuming an inflation rate of 6%, your retirement corpus would be:
Retirement corpus = (50,000 * 20) / (1 + 0.06)^20 = Rs. 1.6 crores
This means that you would need to save Rs. 1.6 crores by the time you retire in order to maintain your current lifestyle for 20 years in retirement.
Conclusion:
Deciding your retirement corpus is an important part of retirement planning, but you must always have a life or term insurance plan so that if you do not u live the years, your family can benefit from the corpus. By considering your current expenses, desired lifestyle in retirement, life expectancy, inflation, and investment returns, you can create a retirement plan that will help you achieve your retirement goals.
