I am Tania Jaleel
In this podcast we will be talking about the factors to consider while calculating your retirement corpus.
Saving for retirement is possibly one of the most important financial goals.
This is because accumulating an adequate corpus will help one live a financially comfortable life post retirement.
And knowing how much to save, will help during the pre-retirement phase, i.e., the accumulation stage.
Here is how you can decide how much to save for retirement
Decide the number of years you have till retirement
While most would like to retire early, it comes with its own set of challenges. The sooner you want to retire, the longer will be your post retirement life.
As a result, on one hand, you will have to arrange a bigger retirement corpus for a longer retired life, and on the other hand you will have lesser time to save the required amount.
It is only feasible if you have an extremely high income, else you will have to give yourself a long time frame for saving.
Therefore, you will have to try different time frames to find which one suits you the best.
Inflation during accumulation phase
It is one of the most neglected aspects of retirement planning, and one which if ignored can cost you dear.
Saving for retirement is one of the longest life goals for which you have to save, and if inflation is not adequately factored it may nullify the years of hard work.
As you will be planning and saving for many decades, your expenses will grow manifold and hence, your saving must be aligned to meet these higher expenses.
While a 6% rate is preferred by many experts, you may tweak it lower or higher if the nature of your lifestyle and expenses demand so.
Estimate the desired monthly expenses in retirement
Regular income during retirement will only come from your savings that you have done during the accumulation phase.
So higher the income you would want, the bigger will be the corpus you will have to build.
If you keep the income requirement too low, it may not be enough to sustain your retirement expenses.
So, the best way to estimate your monthly expenses during retirement is to link it to your current lifestyle and factor in the impact of inflation over the years.
You can take your current household expenses minus the loan repayments and investments.
Rate of inflation during post retirement phase
As the planning may involve 5 decades or more when we include both pre and post retirement phases, the average rate of inflation may also go through some changes.
A developing country like India is expected to have higher inflation during the high growth phase which is likely to keep inflation high.
With time as the growth rate will fall, inflation may subside.
Keeping this in mind, you may try a lower inflation during post retirement phase if it is more than 2 decades away.
Expected rate of return during retirement years
During the accumulation phase you can afford to take greater risk for higher return as you will have time in hand to make up in case of any loss by enhancing your earning, stretching your retirement age and so on.
However, after retirement your risk appetite will come down.
Therefore, for a realistic financial plan it is better to go for a conservative return during the post retirement phase as majority of investment will go towards safe, regular income products
