Tuesday, April 20, 2021
HomeRetirement PlanningDetermining Retirement Income Goals, Actions & Decisions - Retirement Planning

Determining Retirement Income Goals, Actions & Decisions - Retirement Planning

The best way to predict the future is to create it

-Peter F. Drucker

When it comes to thinking for retirement, people usually have more fears and apprehensions. When fear overtakes the mind, and you don’t know what exactly to do, you decide not to do anything. So, doing nothing becomes the best strategy. Hence, let’s first try to understand what those fears are that prevent people from planning for retirement.

When it comes to money, most people have only dreams and no plans!

Moreover, those who have plans - they have these plans locked inside their heads. There is no written plan, no reviews. That’s why most of us do not achieve our financial goals.

I believe in retiring early and living on a beach or spending time on the hills may be.

–If you have the same plans, then this chapter is for you. It talks about the importance of retirement planning, and how you can create your mini financial plan for a happy and relaxed retired life. You will learn about these ideas, plus a retirement calculator to find out.

Wondering how much would you need in your retired life, is no easy calculation and, not a one-time exercise!

Imagine, starting on a long road journey, and halfway through, you run out of fuel in the middle of the desert, with no nearby fuel station!

This journey could be even scarier if you start your journey, let’s say from Delhi to Jaipur. When you are driving from Delhi, what are the few essential things you need?

GPS, Google Map, Fuel. Map to give you directions and GPS as the technology or know-how.

For a road journey from Delhi to Jaipur, if you have a Delhi to Rewari map, you can never reach Jaipur!

Retirement planning also requires that you have plans, directions and some know-how with continuous checking.

It would help if you had the right direction and continuous check, to know that you are going on the right path.

Sometimes, discussion with a friend can get you thinking and lead you in wrong directions, especially when that friend is not an expert in financial planning!

However, the worst idea would be, a death-bed-regret that you spent all your life chasing what someone said you should and instead not doing what you wanted to do.

Your retirement plan will vary based on your current age and at what age you want to retire.

I did a small survey and discovered the following prominent issues and what my clients asked:

  1. I don’t know the age when I would like to
  2. I don’t know the amount I would need every month during my retirement
  3. I don’t know my life
  4. I don’t know the amount I should accumulate for reaching the ideal retirement fund or
  5. I don’t know where I should or where should I not keep my retirement
  6. How much amount should I start saving today for my retirement?
  7. What would be the tax treatment for this retirement corpus?
  8. Do I need to hire a planner to get me these investment ideas?
  9. How do I select and identify the right planner for this task?
  10. Do I have to pay to seek assistance regarding the management of this retirement fund?

It is not easy and not that difficult to get all the answers to these questions but to fail to plan is planning to fail! So let me give some ideas on these issues and get you going.

Retirement Calculator

Investor Details
Your Present age (Years) 30
Retire Age 40
Your expected life expectancy 85
Monthly expense today ` 50,000
Annual rate of inflation 6%
Annual return you expect on your retirement corpus - Pre retirement 12%
Annual return you expect on your retirement corpus - Post retirement 9%
Monthly expense in the 1st month of retirement corpus ` 89,542
Sum required in retirement to continue with present lifestyle: Rs. Retirement corpus ` 2,73,90,569
Monthly saving required today to reach retirement corpus ` 1,19,069
Per YEAR (Growing by 10%) ` 79,593
(*): Terms and conditions apply

Please consult a CFP on right use of this calculator

© Taressh Bhatia CFP 2019

Download Excel Here: http://therichnessprinciples.com/download 

Scenario-1: You are in your 30s and wish to retire early by 40:

  • Do You recall Hrithik saying in the movie: Zindagi Na Milage Dobara
  • To Retire at the age of 40 is another dream for some For you to retire early or seek financial freedom at any age and learn about this freedom, you need to grasp it and grab it.
  • In this movie, Hrithik has the motto to work hard till 40 and then retire with a huge bank balance by the age of As a result, he works accordingly. So, if you also fall in this category, stay tuned as the easy calculations below will help you to retire by 40.

Your retirement plan will vary based on your current age and at what age you want to retire.

 

Scenario-2: You are in your 40 and wish to retire by 60:

Let’s assume that your current age is 40. And you would like to retire at the age of 60. With life expectancy as 85, you might like to know; how much amount is required by the time you turn 60. If you haven’t made any saving for this goal, you would like to know the ideal saving per month to achieve this goal.

Retirement Calculator - 2

Investor Details
Your Present age (Years) 40
Retire Age 60
Your expected life expectancy 85
Monthly expense today ` 1,00,000
Annual rate of inflation 6%
Annual return you expect on your retirement corpus - Pre retirement 12%
Annual return you expect on your retirement corpus - Post retirement 9%
Growth Rate 10%
Real rate of return 2.83%
Monthly expense in the 1st month of retirement ` 3,20,714
Sum required in retirement to continue with present lifestyle: Rs. Retirement corpus ` 6,90,69,993
Monthly saving required today to reach retirement corpus ` 69,820
Per YEAR (Growing by 10%) ` 35,214
(*): Terms and conditions apply

Please consult a CFP on right use of this calculator

© Taressh Bhatia CFP 2019

Download Excel Here: http://therichnessprinciples.com/download

Scenario-3: You are already in your late 50s and need a better retirement plan:

  • Let’s assume your age is 59 and you are now nearing your retirement age of 60.
  • You would like to know that from your age 60 till your age 80 (assumed life expectancy), how much amount do you need to be set aside exclusively, for this retirement goal?

Scenario-4: You are already in your late 60s or 70s:

Assume you are already in your 60s or 70s and have started living with your lifelong savings as your retirement corpus. You would like to re-assess if your current saving will last for your lifetime?

Based on the above scenarios, different calculations are required.

Once you understand the following steps, you need to act on them to ensure fruition.

To-Do List: Plan for Retirement

  1. The first step: is to calculate the exact amount of your current household expenses, including your groceries, internet, mobile, rent, repairs, maintenance of a house.
    You can take the help of this household expense calculator (available online) to do these calculations.

    Expenditure

    S.No. Particulars Monthly Annual % of Income

    Houshold Expenses

    1 Grocery & Toiletaries
    2 House - Rent, Maintenance, Repair
    3 Conveyance, Fuel & Maintenance
    4 Medicines/Doctor/Healthcare
    5 Electricity/Water/Labour/AMCs
    Sub-total of Houshold Expenses

    Lifestyle Expenses

    1 Clothes & Accessories
    2 Shopping, Gifts, Whitegoods, Gadgets
    3 Dining/Movies/Sports
    4 Personal Care/Others
    5 Adivsors-Financial, Fitness etc
    6 Travel & Annual Vacations
    Lifestyle Expenses

    Dependent Expenses

    1 Children’s Schooling/College
    2 Contribution to Parents, Siblings etc
    Dependent Expenses

    Insuarance Premiums

    1 Life Insurance (Term)
    2 General Insurance
    Premiums & Advisory Fee

    Loan Servicing

    1 Home Loan EMIs
    2 Vehicle Loan EMIs
    3 Personal Loan EMIs
    Loan Servicing
    Net Outflows
    Savings (Inflows - Outflows)
    (*): Terms and conditions apply

    Please consult a CFP on right use of this calculator

    © Taressh Bhatia CFP 2019

    Download Excel Here: http://therichnessprinciples.com/download

  2. The second step: Inflation
    • The second step is understanding how inflation is going to increase your current household expenses and thus, what would be your monthly household expenses when you reach your ideal planned retirement age, let’s say 60.
    • So, if you would assume current inflation of 7% (no matter what the current government might claim to bring it down to 5% or less, last 30 years’ data in India, indicates 7%) You can take the help of this inflation-calculator (available online) to do these calculations.

Inflation - 2

Current monthly household exense ` 1,00,000
Remaining years for Retirement 20
Expected inflation 7%
Value of Money ` 3,86,968
(*): Terms and conditions apply

Please consult a CFP on right use of this calculator

© Taressh Bhatia CFP 2019

Now, with the use of this retirement-calculator (Download Excel Here: http://therichnessprinciples.com/download) find out the value of inflation -linked with monthly household expenses.

  • Let’s say, your current household expenses are 1 lakh per month, at your assumed age of 40, then for your retirement age of 60, this household expenses would become Rs. 3.87 lakhs per month and increase every year, thereafter.

3. The third step: Retirement Age

The third step is to identify, what should be your retirement age, or when you think you would ideally like to be financially independent if there’s another way of calculating the retirement age.

4. The fourth step: Life Expectancy

The next step is to know your life expectancy. So, you may expect to live to till the age of 75 (Source: UN Population Division World Life Expectancy for the year 2050), or you may like to make it more conservative at 80 years.

5. The Fifth Step: Increase and Decrease in Expenses

    • Now, you also have to imagine, when you reach your age of 60, would there be an increase or decrease in your household expenses and other liabilities.
    • Liabilities like a home loan would have ended, your children would have completed the education, and you may not have other additional liability.
    • However, there may be an increase in your other goals, like you may now like to go on vacation more frequently.
    • You may now like to give out more gifts or you wish to travel more. Medical expenses may also go up.
    • So, factor in these incremental costs and include them in your monthly expenses.

6. The Sixth Step: Spouses’ Retirement Age

At this stage, you should have factored in your spouses’ number of years for retirement. Increase your life expectancy by 5 years if your spouse is 5 years younger than you.

7. The Seventh Step: Monthly Expenses after Retirement

    • Now, with the help the retirement-calculator, you can estimate that the 3.87 lakh monthly expenses would be required (from your starting age of retirement of 60, to your life expectancy of 80).
    • This leads to the calculation as to how much corpus or how much amount, would necessarily be required, at your age of 60, to give you a steady monthly pension of 3.87 lakhs while being compounded by inflation every year.
    • This would now be calculated, on an assumption of the post-retirement return of (a safe and conservative) 9%. By computing on the calculator, this amount would come to 7.55 crores.

8. The Eighth Step: Monthly Saving

    • The next step is to find out how much you need to save per month, to accumulate this corpus of 7.55 crores by the age of 60.
    • We now take an assumed pre-retirement return of 12% (could be a mix of equity: debt, depending on your age, risk profile).
    • You have to calculate now, the total investments made till now, towards this goal exclusively; then reduce that amount from the corpus of 7.75 crores but on future value.

9. The Ninth Step: Using Retirement Calculator

    • Now, using this retirement-calculator, you can find out the amount of investment required to reach this goal of 7.75 crores in the next 20 years.
    • In this case, it comes to 76,359/- per month fixed for the next 20 years.
    • Simply, you need to save 76,359/- per month towards the retirement planning goal, if you haven’t made any investment towards this goal to date.

Retirement Calculator - 3

Investor Details Input
Your Present age (Years) 40
Retire Age 20
Your expected life expectancy 60
Monthly expense today ` 1,00,000
Annual rate of inflation 7%
Annual return you expect on your retirement corpus - Pre retirement 12%
Annual return you expect on your retirement corpus - Post retirement 9%
Growth Rate 10%
Real rate of return 1.87%
Monthly expense in the 1st month of retirement ` 3,86,968
Sum required in retirement to continue with present lifestyle: Rs. Retirement corpus ` 7,75,59,204
Monthly saving required today to reach retirement corpus ` 76,359
Per YEAR (Growing by 10%) ` 38,803
(*): Terms and conditions apply

Please consult a CFP on right use of this calculator

© Taressh Bhatia CFP 2019

 Download Excel File: http://therichnessprinciples.com/download

10. The Tenth Step: Growing Annuity

  • According to Aon Hewitt Salary Increase Survey 2014-15,

the average annual increment in salary in India is 10 %.

    • If you increase your investment every year by 10% in line with your annual increment, then you have just to save Rs 38,000/- per month, instead of Rs 75,000/- per month
    • This makes it even more comfortable and convenient, for you to start saving and then, gradually increase, your monthly contribution by 10% every year.

With these ten steps, you can plan your retirement, or you can get started with retirement planning.

    • So, go ahead, make plans and get your finances organized.
    • It’s important to get started but at the same time, do not try to be 80% of the goal is already accomplished once you get started. There is a fragile line between procrastination and perfectionism!
    • Keep on reviewing your goals periodically, just like you would check your directions while on a road journey.

Whatever you choose, brace yourself, because people are always going to tell you:

You are wrong!

That’s why you need to know why you are doing what you are doing. Know it in advance. Use it as your compass and optimize your life around it. Then, let the other goals be secondary.

So when it’s the moment to decide, you can choose the value that you already know matters most to you.

So, think and plan ahead. Happy Investing!

Treat retirement like a journey! Not a destination! Enjoy the journey!

Tareshhttp://www.advantagefp.in
About ADVANTAGE FINANCIAL PLANNERS LLP: The Firm is registered with Government Of India-The Ministry of Company Affairs as a partnership firm. The firm is registered with SEBI (The Securities and Exchange Board of India) as "Registered Investment Advisors (RIA) under the SEBI (Investment Advisers) Regulations, 2013. Registration with SEBI as "Registered Investment Advisors (RIA) brings more formal approach, risk profiling, disclosure, and transparency. While the firm is a fee-based investment advisor, this brings you the opportunity to get unbiased, researched, accurate, transparent and professional advice. The firm is managed by the founder and its Partner, Taresh Bhatia. The company provides financial planning advisory services from its office in Gurgaon, India. The firm specializes in investment planning, retirement planning, tax planning, personal financial planning and wealth management. About Taresh: Taresh Bhatia is CFPCM CERTIFIED FINANCIAL PLANNERCM. He provides fee-only financial planning advice. He has helped over 300 families plan and organizes their economic life so as to move positively towards their financial goals. Taresh is an expert on financial advice and has three decades of industry experience. Among his qualifications, he is a CFPCM CERTIFIED FINANCIAL PLANNERCM and an MBA from IMI, New Delhi. He is also a member of the Financial Planners' Guild, India (FPGI), an association of Practicing Certified Financial Planners. If you have any questions, please email us at Support@advantagefp.in

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