Right way to calculate your Retirement Funds

As per recent CRISIL research report, by 2050, in India, almost one in every fifth individual (currently it is one in every twelfth) would be above the age of 60 and would be financially dependent in their sunset years for their survival income on working population. This would in turn create dependency on government and our GDP spending.

Hence it is very necessary that in addition to the compulsive savings for retirement, we calculate correctly our retirement requirement. It is also essential to capture the additional expenses that are not part of current cash flow expenses but could be incurred in later years. The major expenses on retirement can be bifurcated in two major segments – living expenses and medical expenses. Both are equally important and unavoidable.

Calculation of Your Retirement Funds

a) Calculate your Monthly expenses - Be very clear about the expenses, always assume expenses on higher side and not on lower side. Some pointers to be remembered are as follows:

•  Calculate the exact family dynamics. i.e. age of members, contributors to income or any specific expenditure – like your fiftieth wedding anniversary celebration. 

•  Please include your Medical expenses on wider scale. You can take into consideration your parents’ medical history or your past records. Don’t ignore the increasing health insurance premiums.

• Also consider the inflation in calculating your requirements. If suppose at your current age of 40 you spend Rs.50,000/- per month as your living expenses and intend to retire at 55, then anticipating expenses to increase at 7% pa, the corpus required to maintain your post retired life for another 25 years is Rs.4,00,00,000/-. It is wrong to ignore inflation.  

Retirement Corpus Calculated without inflation	Rs. 1,50,00,000
Retirement Corpus Calculated with inflation	Rs. 4,00,00,000

 b) Identify any major post retirement goals – Usually every individual fulfils his major goals before retirement and then spends his remaining years enjoying his time with his loved ones. However, sometimes there are special occasions in life of these loved ones that requires them to spend money. Some of popular expenses include – gifting your children, grand children on their birthday, wedding, visiting children living abroad or any social contribution towards society betterment. Even major overhauls or repairing in home can turn out to be a big hole in your pocket. Even if you want to make any monetary commitment for post retirement it is best to plan it.

c) Identify your earmarked assets – It is best to earmark assets at the beginning of your working life towards the retirement goal. Usually investments like Provident fund, blue chip stocks are best for long term investment. Also, if you intend to retire in a small town, then the existing metro city home can provide good regular income by renting out the apartment or using reverse mortgage to get better liquidity.

d)  Make early beginning – Although, the earnings in beginning would be meagre to save. However, a small amount saved early can earn huge amounts in the long run. If a 25 year old man, starts saving Rs 5,000 pm then at conservative rate of return of 12% would fetch him approx Rs.1,76,00,000/- at his age of 55. If he delays his retirement age to 60, the amounts balloons to approx Rs.3,25,00,000/-. 

Start age for Savings - 25 years	Age of Retirement
Savings per Month Rs	50	55	60
5000	Rs. 94,88,175	Rs. 1,76,49,569	Rs. 3,24,76,345
7500	Rs. 1,42,32,263	Rs. 2,64,74,353	Rs. 4,87,14,518
10000	Rs. 1,89,76,351	Rs. 3,52,99,138	Rs. 6,49,52,691

   

So, start calculating your retirement corpus right away and in a right manner. It is necessary to plan it as one of the priority goal after covering your life risk and contingency fundin. Retirement is not to be mistaken as a no income period but should be seen as tension free, financial independence period.

*- Please note in all return calculation we have not considered the taxation. 


Regards
Saarthi Financial Planners
www.saarthifp.com