What’s your answer to the question if someone asks you regarding your preparation for retirement? Have you been saving up for those years of your life when you will want to just relax? Will you be able to make the same amount of money that you are currently earning? According to surveys, only a third of Indians save for their retirement. Even after your retirement you will live for around 25 years. So, read on to find out how you can start saving up for your retirement to lead a comfortable life.
Planning the duration:
We all have our own plans for retirement at a certain age. In India, the average retirement age is 58-60 years. So, if you have plans to retire early you will be needing more money than another individual who plans to retire a little late. Thus, it is important to see how much time you have from now to retire and start saving accordingly. Thus, the earlier you start saving up for retirement the better it is.
Let’s say you are 30 years old today and your monthly expenses is Rs.50,000.Assume if you continue to lead the same level of lifestyle in the next 30 years, you will have to invest Rs. 19,061 monthly. Thus, at 12% rate of interest, you will have to save Rs. 6,72,82,903 at the end of 30 years in total. But what if you start five years after? You must invest Rs. 25,280 per month to reach the same goal at the same rate of interest. What if your expenses rise and you wish to live an even better lifestyle? You will have to save even more.
Also read: Portfolio and retirement lifestyle
With the rising price of goods and services, the cost of living increases. For example, if the monthly expenditure of your house today is 50 thousand per month, in 25 years you will be needing Rs. 2.71 lakhs per month to live the same level of the lifestyle. The inflation rate taken is a rate of 7%. Thus, you need to be able to beat the inflation and have enough finances for your retirement. If you are successfully able to manage your finances you will be able to meet your increasing medical expenses or even plans to travel.
Ability to take risk:
You should not listen to the crowd. You will get recommendations on quick plans or shortcuts to save up for your retirement by your friends or relatives. However, as an individual you should know how much risk you can take and how much of your finances you can allocate. Your focus should be to invest on a long term basis. Thus, in this case you can invest your savings in shares and equity mutual funds. Once, you reach closer to your retirement you should start saving on more safer and stable forms of financial avenues such as bonds.
Financial plan including retirement:
Each individual has their own goals for savings and retirement. You should decide what you want to save for and how much time to do you have to be able to meet those dreams. If you wish to retire early you will need more finances. However, if you need to finance your child’s post graduate studies for example, you will need to have your finances planned. You should have enough savings so that your retirement money does not get used up. Let’s say you wish to purchase a two BHK flat in the metro city you are currently working at. However, when you see the down payment, you find out that the price is inflated. Thus, for all these needs you need to have a proper plan and can head to a financial planner to meet your goals.
Do not divert your focus to home loans:
So, you bought that house you always dreamt about. Now, all you want to do is pay off the loans first. Thus, all your focus is diverted to paying off home loans and you you do not start saving for home loans. When you start saving you receive interests.
For example, if you take a SIP for Rs. 6,000 per month, with an earning rate of 13% at the end of 20 years you will have accumulated Rs.54,33,115. Now, let’s assume you have taken a home loan of Rs. 50 lakhs whose tenure is also 20 years. At an interest rate of 8.50%, the interest payable is Rs. 54,13,878. Thus, you are able to gain Rs. 19,237. So, you have paid your interest from your earnings. Thus, you can pay your home loans and also save for your retirement through investments simultaneously.
Insurance for health:
As you age, your health related costs tend to rise. Thus ,your medical expenses should also be considered in your retirement plan. Your health insurance may include costs such as hospitalisation. But what about the medicines or other conditions which are not covered? Also, what kind of hospital would you want to stay in if the need arises? Do you want your own private room or a standard ward with three to four beds? So, always include both the insurance and the funds aspect in your retirement plan.
Say no to procrastination:
“I need to start saving, I will start from next month”. Tomorrow never comes when you start procrastinating. You need to start right now and enjoy those golden years of your life.