Last week we have seen How to think about your Retirement Planning and what steps should be executed and what should be avoided.
For starting your retirement planning first of all we should know your current cash flow alongwith your lifestyle
Before discussing about how much corpus is actually needed for retirement, we need to understand what is Retirement Planning and why is it important?
Retirement Planning refers to the accumulation of savings for retirement and it is one of the most important life event. The goal of Retirement Planning is to achieve financial independence and the reason why you need to save for Retirement is because it is your life.
All of us would like to Retire comfortably but the complexity involved in achieving our Retirement Goal successfully requires us to make a sensible planning and years of persistence. However, we believe that instead of feeling the pinch Post-Retirement, it’s sensible to start saving early. What you just need to do is to start with an attainable saving, plan your investments and with a long term commitment.
The Retirement Plans should be designed and implemented as soon as you start working. It’s always better to seek the help of an experienced Retirement Planning professional if you are not knowledgeable enough to make your own suitable decisions.
Sooner you start, you will experience comfortable.
Latter you start, you wiil experience hardships
Now come to the point how much corpus is required for getting Retired comfortably and maintaining lifestyle intact.
Points tobe considered for calculation your Retirement corpus are
- Inflation. (assumption for entire period) Say 6%
- Rate of Returns on Investment.(assumption for entire period) Say 12%
- Your current Yearly Lifestyle Spending. Say 4,20,000 (35,000 PM)
- Current Age. Say 30
- Years to Retirement age. Say 60
- Life expectancy. Say 85
Required inflated monthly expences at Retirement age
MI = E x (1+r)N
E= Current Yearly_Expenses with contigencies (This the Fig on which success of your Retirement Planning is depends – So be specific on it)
r=Rate of Returns on Investment-inflation (Assumption how much Inflation is going to be there till your retirement)
N= years to retirement (Retirement Age-Current Age)
MI=35000*(1+.06)^30 = 2.01 Lakh
Yearly Exp. required
YExp=MI*12
Yexp=2.01*12 = 24.12 Lakh
The corpus required at the time of retirement
RetCorp = YExp/inflation
RetCorp = 24.12/.06=4.02 Crs
Now we make assumption that in your retirement your medical Bills will be more inflated say by 2% so you will have to inflate your corpus according to that requirement.
RetYrs=Life Expactancy – Retirement Age
Final Corpus Required
FinCorp = RetCorp*(1+.02)^RetYrs
FinCorp = 4.02*1.02^25 = 6.60 Cr
This is how you will get actual corpus needed.
Now you got the fig how much amount is to be accumulated for your retirement corpus
Now we will calculate how much Investment is needed for achieving the Goal
Lumpsum Inv Required = FinCorp / ((1+Rate of Returns/100)^(years to retirement)
Lumption Inv Required = 6.60 Cr / ((1+0.12)^(30) )= 13.42 Lakh
sipYearlyInstallment = round(((totalCostFV * ror / 100) / (((1+ror/100)^period)-1)),0)
sipYearlyInstallment = round(((6,60 Cr * 12 / 100) / (((1+12/100)^30)-1)),0) = ₹2,73,000/_
sipMonthlyInstallment = round(((totalCostFV * ror / 1200) / (((1+ror/1200)^(period*12)-1))),0)
sipMonthlyInstallment = round(((6,60 Cr * 12 / 1200) / (((1+12/1200)^(30*12)-1))),0) = ₹18,884/_
Now if you would have been started at 25 then see what would be the sip amount
sipMonthlyInstallment = round(((6,60 Cr * 12 / 1200) / (((1+12/1200)^(35*12)-1))),0) = ₹10,262/_
so start saving for Retirement from today only if still not started.
Next week we will discuss about Perfect Retirement Solution and how it is possible to get monthly income which will be increasing yearly basis.
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