If you are selecting to read this article, your retirement countdown clock is ticking away. In your busy schedule, do you get to listen to it? If yes, what are you doing about it? Or if you are among those who take refuge in golden retirement myths like “I am too young to bother about it” “my living expenses will be lower when I retire”, and my children will take care of me” and so on? “I would buy Pension Plans, they will take care me.” I am sorry here; to these people and urge them to stop reading this article and get back to work themselves.

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Today’s Scenario

Today, a person retiring at 58 or 60 can expect to live well beyond 80. This means in a work life spanning about three and a half decades, you need to have stashed away enough to last more than two and half decades when there will be no cheque at the end of the month. You will have to create one through wise investments throughout your work life. In India, the government and corporate world do not provide old-age support except your mandatory contribution towards retirement savings such as GPF or EPF as the case may be, don’t take you far. The days of fixed or rising company and government pensions have been over.

Thus, the regular pay cheque needed in retired life requires self-directed investments. So, how do you prevent the ticking retirement countdown clock from becoming a fuse to a retirement bomb?  Finding the answer is the key to formulating a successful retirement plan. This may fairly complex process. Now before you roll your eyes and yawn, let us tell you that it is, however not such a difficult thing to do if you follow a few simple steps.

Make your retirement roadmap

Before you begin estimating your retirement corpus for your rainy days, firstly you need to know where your finish line is? In this case, this is your retirement age. For instance, the later you retire, the more time you have for your money to grow. If you have less time left, you will need to save more.

Many of us might have already started saving for retirement. If we have too little, then your retirement savings could run out too soon and leave us in penury. If we save too much, we would be forgoing unnecessary amounts of current consumption and living below the standard we can afford. Also, ad hoc saving, often just to save taxes, is not conductive to achieve long-term targets. So, you need to know how much you have to save regularly and where you need to invest to reach your goals.

Estimation of Retirement Needs

This follows from your retirement age and your current monthly expenses. For instance, today’s monthly expenses of, say, Rs30,000 would balloon to about Rs1,39,829 per month in 20 years at current inflation of just  8 percent. Simply put, Rs 3.60 lakh of current yearly expenses balloon to Rs 16.92 lakh in 20 years because of inflation. You need to create a corpus of about Rs. 3.37 crore to spend Rs 16.78 lakh each year to live the next 25 years. To generate this corpus, you need to save and invest about Rs 4.17 lakh each year while assuming return @ 12% p.a.

Don’t be afraid above tedious calculations, you can calculate yourself own post- retirement yearly expenses for this white elephant plan with the help of following table that would not give you any more excuse not to start saving right away.

Future Retirement Expenses Table

Years to Retire With 6% Inflation With 8% Inflation With 10% Inflation
5 1.3 1.5 1.6
10 1.8 2.2 3.2
15 2.4 3.2 4.2
20 3.2 4.7 6.7
25 4.3 6.8 10.8
30 5.7 10.1 17.4
35 7.7 14.8 28.1

Continuing with the same example of X as above that , if your current expenses are Rs 3.60 lakh p.a. and by multiply with 4.7 (20 years to retire) would calculate Rs 16.92 lakh for your first year retirement expenses with 8% inflation.

Evaluate your options to invest

You need to choose the investment options that will take you to your destination. Don’t buy any pension products from insurance companies; they could not meet your retirement requirements.  For those looking for exposure in equities, your retirement portfolio may comprise diversified equity mutual funds or balanced funds. The debt portion of your portfolio may largely comprise Public Provident Fund (PPF) or Employee Provident Fund (EPF).  A word of caution is here that any liquid nature of these investment instruments could prove as a deterrent to long-term planning and there might be a tendency to use the corpus for other life-stage needs, compromising on retirement planning.

Last but by no means least; ensure that you and your family members are covered by a health insurance plan. Keep an adequate life cover, preferably through a term insurance plan of at least 10-12 times of your annual income.

This article got published in Hindi Dainik Bhaskar on 06-10-2015. To Read in Hindi, please click here

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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