How Much Do You Need To Save For Your Retirement?
Volatile equity markets and low-interest rates have made financial planning for a secure future more relevant than ever before. However, in an environment of rising inflation and tapered rates, the question on everyone’s mind is just how much to put aside for retirement plans to maintain the current lifestyle? In this article, we will try to address the question.
Assess your Goals
The exercise for calculating your retirement corpus is dependent on your life goals. The one-size-fits-all strategy is ineffective in retirement planning. It is crucial to discuss and put down your personal or professional goals post-retirement. Needless to say, if you want to buy a new car, a new home, or go on vacation every summer, you will need a large sum of money, whereas others who want to live a peaceful retired life pursuing hobby may require much less.
Your current lifestyle and other objectives influence pension policy. The set goal will motivate you to be more aggressive in your investments if you fall short of the funds. You can use a pension calculator available online in India to determine how much you’ll get based on your monthly fund investment, tenure, and retirement age.
Factors To Consider
Some of the essential considerations that will directly impact your pension fund are outlined below.
- Age of Retirement
How much money do you need post-retirement depends on the age of retirement? However, it is safe to say that the longer is your retirement period, the higher the amount you should have to sustain yourself. This necessitates increased monthly contributions to the investment fund and an aggressive investment strategy for better returns.
Therefore, if you intend to retire early, you will need a substantial corpus to support your lifestyle for a more extended period. This is in contrast to the individual who wants to retire in his 60s.
Retirement plans are long-term financial products that require time to produce high returns. Your monthly payment to the fund, tenure and estimated retirement age all have a bearing on the returns you will generate from your pension fund. Therefore, it is best to begin planning for retirement at the earliest feasible age. Because of the power of compounding, even a small contribution from the start of your life towards the pension schemes can help you create a substantial corpus.
- Expected Monthly Expenses
The second critical factor in determining how much money you will need to cover your estimated monthly costs after retirement. It includes your grocery, entertainment, dependents, medical costs, debt repayment, utility bills, and other expenses. Consider all of these variables when determining and calculating your monthly expenses. This provides you with an estimate of your future monthly costs. Remember to account for the effect of inflation on your monthly payment while calculating.
- Other Sources of Income
After retirement, your regular income flow from your job will stop. Thus, taking care of your monthly expenses post-retirement may become complicated if you haven’t planned for alternative sources of income.
It is, therefore, important that your retirement portfolio must be diversified with assets in fixed deposits, government schemes, equities, and mutual funds, among other things. Moreover, alternative sources of income are vital to living a pleasant life in your golden years. Therefore, it is essential to explore retirement schemes in India and invest in one that meets your needs.
- Provisions for Emergencies
Emergencies such as car maintenance, home repairs, healthcare costs, and so on necessitate urgent finances and might negatively influence your retirement savings. Therefore, it is essential to take the following precautions to deal with emergencies.
- Create an emergency cash reserve like cash deposited in a savings account or FD.
- Always buy insurance.
The considerations outlined above will be important in calculating how much money is needed to live a stress-free life after retirement.