Though you may wish to continue working for many years, the hard fact of life is that at some point in time, you will have to hang up your boots. Shunning away something that has been the essence of your identity is already a difficult transition. You wouldn’t want to change your lifestyle too.
If you want to live your life after retirement the way you do now, it is important to invest wisely for your retirement kitty.
To give just one perspective of the issue, with a life expectancy of an urban dweller touching 80, and retirement at the age of 58 - 60 years, you have at least 20 years to utilize your retirement funds. Let us say that the monthly expenses are going to be Rs. 40, 000 per month. This means for the next twenty years, you must have at least Rs. 60 lacs in your account to lead a comfortable life. Would this corpus be enough for you? Let us see look at the factors to keep in mind when fixing up your financial goal for retirement.
Create an expense sheet
First and foremost, list down your current and future expenses. This will include household expenses, medical and utility bills, travel costs, loan EMIs (if any), emergency fund building and achieving other financial goals like child’s tuition fee or wedding expenses.
In the above example, we have not included the effect of inflation on food, fuel and other articles. But inflation is the reality of life. So, you will have to take price rise into account while calculating your retirement funds. Therefore, while listing down the expenses, factor in the inflation. For instance, if your annual expenses add up to Rs 7 lac per annum today, assuming an inflation rate of 5%, you will need 18.57 lacs per annum after 20 years to sustain your expenses. You can make use of an inflation adjusted value calculator to arrive at this figure.
The average life expectancy in India is close to 68 years now; . with improving medical technology, life expectancy is improving further. Assuming you live up to 80, you have 20 more years after retirement. To sustain expenses for those 20 years after retirement, you need a corpus of Rs 3.71 crore in this case.
Prioritize your Health
Most retirees are afflicted with lifestyle disorders like hypertension, high blood pressure, diabetes, etc. While these diseases are manageable, it makes sense to factor the associated medical expenses in your monthly budget. If you have a health insurance in place, make sure you still keep aside a certain amount for medical uncertainties in your retirement funds. Critical illnesses such as heart diseases and cancer are on the rise too. Note that costs associated with such diseases could run into lakhs. Fixed benefit health insurance plans can provide you with lump sum upon diagnosis of such critical illnesses. You can use the lump sum to meet all medical and non-medical costs that you will incur during the long treatment and recovery phase.
Factor in other financial goals too
Many people in India have started marrying in their late 20s or early 30s. This delay has a snowballing effect on their retirement expenses as well. If your child is just entering college at the time of your retirement, then you need to apportion a certain sum of money for his/her education seperately. In case your child opts for a professional school, then the detailed budget will be on a higher side. You may have to dip into your savings significantly in case your son or daughter opts for international education after completing graduation. While calculating your child’s education, do not put arbitrary numbers to the goal. For instance, if you child is keen to do an MBA, factor inflation into the current expenses. Don’t put arbitrary numbers like Rs 50 lakh or Rs 1 crore to your future financial goals. Always work with real numbers. For example, if the child’s higher education costs Rs 50 lakh now, inflate the figure by 5–6 per cent per annum to reach a realistic number. It would cost around Rs 90 lakh in 10 years time at an inflation rate of 6 per cent per annum. Don’t let other financial goals derail your retirement savings. Factor them in advance and make sure your retirement money is safe.
In the Indian context, it is the unsaid duty of the parents to plan and arrange for the marriages of their children. While times are changing and many children are paying for marital expenses on their own, a vast majority of parents still sees marriage as a significant expenditure. So do factor in the expenses that you will incur for your child’s marriage as well.
Investment done well can be your mantra to check all the things on your to-do list!
Lastly, you should also set apart some money for your travel and leisure activities. Who says that retirees should not have fun?