All you wanted to know about retirement , but didn’t know to ask ?
Posted By: Admin
- What is the true meaning of retirement?
Retirement is not having to do work to earn a living. If you are working out of passion and that earns some money incidentally then also it is considered retirement. In a retired state, you are not doing anything that you do not want to or that which you are not passionately involved in just for the sake of earning a living. It is also a phase where having your time is more important than earning money. But to have the time, you must have managed the money to provide for your future.
- Why must one plan for retirement?
If today you are living with an income of Rs 1 Lakh per month even without a change in your needs, in 10 years, you will need Rs 162,900 /- to live the exact same lifestyle ( assuming an inflation rate of 5%). There are two factors that are driving the need to have a robust retirement plan
- Early retirement due to a variety of factors
- Longevity of life ( highest in human history)
Due to technological obsolescence and rapid change, the era of long years of employment and employability is over. We are going to find that most people will retire from active work as early as 50 years if not earlier… the good news is that given the high pay packet, this would be enough to help create a good retirement corpus as long as they are diligent about it.
We will all live longer than ever in human history, most of us will live to see 90 years, so if you retire at 50, then your money needs to last you till 90 years, that’s 40 years almost twice as much as your active working life.. the only way to make it stretch is by doing a diligent financial plan.
- When must one start planning for one’s retirement?
Ideally, retirement planning must start and be implemented from your first paycheck onwards. However if one were to be a little more lenient then I would recommend that one needs at least a 20-year timeline to execute a good retirement plan. So depending on how long one is looking to work, one needs to start a retirement plan.
Having said that, the earlier one starts the easier it will be and the better will be the outcome of the experience. For example: If for example if you wanted to retire at the age of 50 years and desired a corpus of say Rs 2 Crores, assuming your investments generate 12% per annum,
If you start with 20 years to go: you will need Rs 20,217, if you start with only 10 years to go to reach your goal, the sum you will need to invest per month will be Rs 86,942/- , while you are only starting only 50% later, your target savings will go up 400% , a disproportionately high rise to reach the same goal. So what it means is that TIME is a valuable ally when it comes to long-term savings and those who can harness this will be financially successful and the one who cannot will pay the price.
- How much should one be investing to make a comfortable retirement ?
The rule of thumb is that one must invest upto 25% of their monthly income for one’s long term needs, but this is a very vague rule. Hence it makes sense to arrive at one’s overall monthly household expenses, grow that number by inflation till one’e age of 90 years and then arrive the corpus that would be needed to reach you there.
By Babu Krishnamoorthy, Chief Sherpa
Category Finsherpa | Tags Financial Freedom
