There are many assumptions involved, but retirement is a numbers game. The idea is that you need to build a corpus which gives you an income which will last till you live. Of course, you may be working late into retirement, but when planning, one does assume some numbers like inflation, rate of return, life expectancy and so on.
How much do you need to retire? Find here.
For calculations, one can use the online tools available on the net or take help of a financial planner. "Make sure that contingencies are also considered while planning for retirement corpus. The planner should be able to look at the spectrum of the above variables and provide for even a worst case scenario," says Renu Maheswari, co-founder and principal
advisor, Finscholarz Wealth Managers.
Let us take an example. Let us say you are 40 and want to retire at 60. You invest mainly in debt and your average return is 8 per cent. We also assume that your current retirement corpus is nil. You want to build a Rs 10 crore corpus for retirement. Calculations will show that you need to invest about Rs 1.68 lakh per month for the next 20 years to reach your target corpus. So let us say, you can invest a lower amount, you will fall short of your goal.
How do you know you are falling short? “Answer to that lies in estimating the number of years in retirement, returns from investment and inflation during the period,” says Abhishek Kumar, Founder, SahajMoney, a financial planning firm.
What To Do When You Are Falling Short?
One way is to increase your income so that you can meet all your expenses and save the required amount every month. In case that is not possible, you have to look at ways in which you will get higher returns from your investments.
“If one doesn’t have that much savings then one should start investing into a mix of growth and income assets based on their risk appetite to meet their required retirement corpus,” says Kumar.
In the above example, let us say, you increase your equity allocation and get returns of 12 per cent. Then the amount of money you need to save per month comes down to about Rs 1 lakh. In case you get returns of 15 per cent, it comes down even further to about Rs 65,000.
So, it is important to review your retirement goal from time to time to check whether you are on track. In case you are falling short, you need to tweak your retirement plan as required.
