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Retirement Planning

Retirement Planning


Inflation. Without understanding me, you can’t do retirement planning

Inflation is a silent killer. 30 years ago most sought after professionals earned Rs.2500/- per month. Looks like a very small amount, doesn’t it? For expense equivalent to Rs.1,00,000/- today you will need Rs.7,60,000/- after 30 years.We may retire at 60, but inflation will not. Inflation was there before we were born and will be there after we cease to exist.

Should expect to live longer, thanks to Science and Medicine

By 2020, average life expectancy in India will be 80 years. Ladies have average life of 4-5 years more than Gents. In India ladies are normally 3-4 years younger than Husbands. So if you retire at 60, you need to plan for 20+4+4=28 years of retirement period. You earn for 30 years and 30 years is your retirement period. Are we properly planned?

Might not be living with our children as our Elders did

When we live in joint family, parents need not to ask for food/ money from kids for their living. But when they are living in different cities/ locations, parents will have to ask from children. As parents we always like to give, give and give, not take money from kids. Children may also not be financially sound to feed two families.

Must need a good cushion for health care as we age

People say our expenses will come down after retirement, but actually they go up in old age because of health issues, which we can’t run away from. We may have health insurance but it will not cover OPD and day today expenses. Health Insurance only covers Hospitalization expense.

Are you sure you can reduce expenses after retirement

Most of your expenses today are not on food, they are majorly on Electricity, car maintenance, petrol, eating out. Can you live without AC, without car. It is actually very painful to even downgrade your vehicle i.e. from Honda city to Maruti 800 or Maruti Wagon R to Scooter.

Why Plan Now?

A 30 year old person starts saving for retirement at age 60. If he contributes 5k monthly now, he will get corpus of Rs.3.46 crore at retirement. Thus he will get pension of Rs.2.30 lac monthly (equivalent to 30k of today). If he starts at age35, he needs to save 10k per month. If he starts at age 40 he needs to save 20k per month. If he starts at age 45, he needs to save 40k per month. Better start now.

Which instrument to use FD or Equity Mutual Funds?

If you are at age 30 today with monthly expense of Rs.30k, you need to accumulate Rs.3.50 crore till retirement for maintaining your current level of expense. You can accumulate this by saving Rs.5k @ 15% in equity mutual funds or Rs.30k @7% interest in FD. Must take knowledge on mutual funds, which have potential to give 15% CAGR.