The aim of retirement planning is to have regular income even after requirement and be financially independent. Apart from income for household expenses you also need to income for insurance premium, contingencies, etc. If you also have other goals such as children’s higher education, marriage, your dream home or dream vacation among others, then you will need a higher corpus to accommodate these dreams.
Retirement planning should start when you are young and not when you are nearing retirement. This ensures that you have enough funds for your various goals. If you start late you will not have enough savings and you will not be able to meet all your goals. To plan your retirement income you should follow the steps given below-
1) Determine your goal- You can start by noting down various goals you want to achieve post retirement. This may include household expenses, medical expenses or any other expenses. Also, decide if you will be working post retirement and if you will have any source of income.
2) Determine the money you will need annually- End of work-life does not mean end of expenses. You will have to determine what will be the minimum amount you will need monthly/yearly. Your retirement age, life expectancy and the various retirement goals will help you decide how much money you will need annually post retirement.
3) Keep inflation in mind- Inflation rises every year. Therefore, the income which seems sufficient today will not be so by the time you retire. An average inflation rate of around 8% can be assumed while determining future income and expenses.
4) Decide the money you need to save- Calculate how much you will need to start saving every month to achieve your retirement goals. Online calculator for this purpose is available which can assist you in determining this amount.
5) Start saving- You should ideally start saving for retirement when you are young. This will give you a bigger benefit of compounding and your investment corpus will be bigger. Younger investors can also afford to invest in riskier investment options that can give higher returns.
6) Invest- For your retirement income you can invest in various schemes such as Public Provident Fund, Employee Provident Fund, National Pension Scheme, and Senior Citizen Saving Scheme. You can also invest in mutual funds to achieve your goals. These schemes give better returns as compared to Bank deposits and also do not carry high risk. You should keep increasing the investment amount as and when your income increases.
Since retirement income is a long term goal, there might be some roadblocks in your savings due to changes in personal or professional situations. There might be changes in your goals along the way. You can make changes in your investment to suit your needs. However, don’t be tempted to withdraw your retirement amount before you retire.