Early retirement planning is crucial for effective financial preparation. However, while planning for golden years, various factors — including inflation rates, life expectancy, and increasing healthcare costs — must be considered to determine an appropriate retirement fund.
Many individuals find it challenging to commence their retirement planning at the onset of their careers. To illustrate how retirement planning can be approached at different life stages, we will examine three specific age groups: 30, 40, and 50 years, assuming a life expectancy of 80 years.
1. Retirement Planning for a 30-Year-Old
Assuming your current monthly expenses amount to Rs 30,000, with an average inflation rate of 5% per annum, your monthly expenses will rise to approximately Rs 1.33 lakh by the time you retire. Consequently, you will require nearly Rs 16 lakh to cover your annual expenses in the first year of retirement. If you account for a 5% inflation increase each year until you reach 80, the total retirement corpus needed would be around Rs 5.3 crore.
Also Read: Senior Citizen Fixed Deposits offering up to 9.1% – Check the latest interest rates
Retirement Planning Recommendations
At your age, it is advisable to have a higher allocation towards growth-oriented assets, such as equities, in your retirement strategy. A suitable approach would be to invest in an equity mutual fund through a Systematic Investment Plan (SIP), ideally in a diversified equity scheme.
By investing Rs 2,000 monthly and increasing this amount by 10% annually until you retire at 60, you will adequately fund your retirement. Over the 30-year period, your total investment will be approximately Rs 40 lakh, which, assuming a 15% return, will grow to about Rs 2.53 crore.
Upon retirement, you should cease the SIP and transition to a Systematic Withdrawal Plan (SWP) for 20 years, withdrawing Rs 1.33 lakh monthly with an annual increase of 10%. The accumulated amount of Rs 2.53 crore will provide the necessary monthly liquidity, with an expected return of 15%. Even at the age of 80, you can anticipate a remaining balance of over Rs 8 crore.
2. Retirement Planning at Age 40
Reaching your 40s marks a significant turning point in life. Unfortunately, many individuals do not recognize the necessity of retirement planning until they reach this milestone. Increased family obligations and the onset of health issues are two key factors that prompt individuals to consider their financial needs after retirement.
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