How to Plan Retirement Funds?

How do we know how much is enough? In the 2000s, a family of four's monthly living expenses were Rs. 30,000 in a metro city. However, in 2023, this same amount is insufficient to cover rent and food, let alone other expenses.

Determining an adequate amount for living expenses is a multifaceted task influenced by factors like inflation, lifestyle choices, location, family size, and personal preferences. Indeed, as you've noted, the cost of living tends to rise over time.

To gauge how much is sufficient for living expenses:

• Consider Inflation: Inflation Factor when estimating future living costs, as it diminishes the purchasing power of money.
• Account for Location: Recognize that the cost of living varies, with urban areas typically being more expensive than smaller towns or rural settings.
• Reflect on Lifestyle: Your lifestyle choices, encompassing housing, leisure activities, travel, and dining, significantly impact your living expenses.
• Evaluate Family Size: The number of family members directly affects overall expenses, including housing, education, and healthcare.
• Address Education and Healthcare: Consider the substantial costs associated with education and healthcare in your estimation of living expenses.
• Prioritize an Emergency Fund: Maintain an emergency fund to provide financial security and cover unforeseen expenses.
• Assess Income Sources: Evaluate your income sources, ensuring they sufficiently cover your expected expenses, including salaries, investments, and other financial assets.
• Implement Budgeting: Develop a comprehensive budget detailing monthly expenses, allowing for savings and discretionary spending. Regularly review and adapt the budget as necessary.
• Consider Financial Goals: Contemplate both short-term and long-term financial objectives, as they influence the financial resources required for various expenses.
• Engage in Financial Planning: Undertake financial planning and, if needed, seek advice from a financial advisor to tailor a personalized financial plan that aligns with your unique circumstances.

Certain calculators help us calculate retirement funds and planning:

• https://www.moneycontrol.com/personal-finance/tools/retirement-planning-calculator.html
• https://www.calculator.net/retirement-calculator.html
• https://groww.in/calculators/retirement-calculator

Eg 1: I am 35 years old, I spend Rs. 50,000/- per month. I am looking to spend a similar amount(not factoring in inflation) when I retire at 60 years for the rest of my life (around 80 years of age). I usually prefer investments in good debentures which allow me to earn 12% pre-tax, per annum. How much should I save a month to achieve my retirement goals?

Ans: Assuming the rate of inflation is 6%, one will have to save Rs. 30000/- per month to achieve the needed retirement corpus.

Eg.2. I'm 50 years old. How much money should I save for my retirement? I want to live a decent life.

Ans: Very subjective to one's lifestyle and factors discussed above. Whatever one’s monthly expenses need to be put into the above calculator links, to derive the retirement corpus needed by the individual.

Assuming, Mr X has living expenses of Rs. 75,000 per month, and he has saved Rs. 10,00,000 in investments so far. If he retires in 10 years, he will need to invest Rs. 140,000 each month to develop a corpus of Rs. 3 crores for his retirement.

Eg 3. I'm about to retire. I have INR 1 crore in my bank account. Is it enough to live a good, retired life? I'm aged 59 now.

Ans: Whether Rs. 1 crore is enough for an individual depends on his monthly expenses and life expectancy. The retiree should invest in an SWP( systemic withdrawal plan) to ensure judicious use of his marginal funds in his financial journey.

If he invests Rs 1 crore for 20 years at 12%, he will be able to withdraw Rs. 1 lakh from the funds every month for the next 20 years.

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In conclusion, effective retirement planning is paramount to ensuring financial security and a comfortable lifestyle during one's later years. By carefully assessing individual goals, considering various investment options, and adapting strategies over time, individuals can navigate the complexities of retirement with confidence. Regular reviews and adjustments to the retirement plan, coupled with prudent financial decisions, contribute to a more fulfilling and stress-free retirement journey.