During the recent festive season—Navratri, Dussehra, and Diwali—you’ve likely noticed how expenses tend to surge during these times. Expenses do rise significantly during festivals and vacations. Similarly, retirement, often viewed as the grandest festival and vacation of your life, can bring higher financial demands due to increased free time and completing your wishlist. This is why proper retirement planning is crucial. If not planned properly, you would have to significantly tone down your standard of living, post-retirement.
When Should You Start Planning for Retirement?
The simple answer is: as early as possible. Ideally, retirement planning should start the moment you begin earning. Your first salary isn’t just for your present self; it’s also for securing your future.
Let us say that you start working at the age of 25. Your employer is giving you a salary. You plan to work till the age of 55 (for 30 years). Is your salary only for these 30 years? That is not the case. When you are working for 30 years, your employer is paying salary not only for your 30 working years but also for the years that you will stay alive after retirement. It is not only for the expenses from age of 25 to 55 but also for the expenses from age 55 to 85 years (assuming life expectancy).
The Power of Compounding
Many youngsters delay retirement planning, assuming they have time, but starting early allows you to build substantial wealth over the years. You can take advantage of the power of compounding—where the money you invest grows exponentially over time. For example, if you consider a Systematic Investment Plan (SIP) in equity mutual funds, the longer your money stays invested, the more it grows. The earlier you start, the smaller the monthly investment required to achieve a large corpus at retirement. The more you delay, the harder it gets.
Planning with a Financial Expert
Firstly, take help of an expert - a financial advisor. Wealth creation and achieving financial goals is not a do-it-yourself activity. It is sensitive and complicated - the cost of doing nothing and going wrong is massive!
Parameters for Retirement Planning Calculation
Here are key parameters to consider when calculating your retirement needs:
• Current Age
• Target Retirement Age
• Current Monthly Expenses
• Inflation Rate
• Life Expectancy
For example, if you're 30 today, planning to retire at 55 with an assumed life expectancy of 85, and your current monthly expense is 50,000, inflation (around 6%) would push your retirement fund requirement to 7 crores. A monthly SIP of 45,000 in equity mutual funds can help you reach this goal over 25 years.The later you start, higher your monthly expenses and sooner you wish to retire - all 3 parameters would increase your retirement corpus requirement.
Don't Forget Lifestyle Inflation
Retirement is not just about covering basic needs. Like how expenses rise during vacations and festivals due to improved standards of living, retirement may bring luxury inflation as you pursue hobbies, travel, and new experiences. Planning for these lifestyle upgrades is essential to ensure financial freedom.
Start Now
Achieving financial freedom isn’t difficult, but it requires discipline. If you haven’t started yet, the next best time to begin is now.
(The author is a Chartered Accountant and CFA (USA). Financial Advisor. Views personal.)
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