Retirement planning for late starters: Have you delayed planning and implementing your retirement and are now worried about how you will manage your expenses when you stop getting a monthly salary in the next few years? It is true that the sooner you start saving and investing for retirement, the better it is. This not only gives you time to save more money, but your invested amount also keeps growing rapidly with the help of compounding. But if you could not do this for any reason, then just regretting will not help.
When you wake up, it’s morning
By the way, you are not the only one who is late in preparing for retirement. According to a survey, only 33 percent of working people in India save and invest enough for retirement. But now instead of regretting this, it is wise to look ahead by following the saying ‘When you wake up, then morning comes’ and start saving and investing for your retirement immediately, so that you can have enough retirement fund in time. So let us understand what strategy of savings and investment should be adopted by those who start this important work late to prepare for retirement. For this, you have to implement the right plan step-by-step.
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Step 1: Calculate your current expenses
First of all, check what your monthly expenses are, that is, what your financial needs are. For this, calculate all kinds of regular expenses including food, clothes, electricity, internet, medicines and local transport, and also make a budget for house maintenance and necessary travels. By adding all kinds of current expenses, your monthly budget will come out. Also keep in mind that if some of your expenses will be reduced after retirement, then the cost of medical treatment may also increase due to increasing age.
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Step 2: Estimate future expenses
After adding your current budget, you will have to estimate your post-retirement needs on the same basis. For this, you will have to calculate the future cost by adding your current expenses by adjusting them according to inflation. For example, if your monthly expenditure is Rs 50,000 right now and the annual inflation rate is estimated to be 6 percent, then after 10 years you will need about 90 thousand rupees for the same things. You can also do this calculation with the help of an online inflation calculator. You will also find such a calculator on SEBI’s website that tells the future cost of current expenses. Not only this, you will have to increase this budget every year by 6 percent or according to the inflation rate.
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Step 3: Estimate your emergency fund
After estimating your regular expenses, you will have to keep an amount equal to your 6 months’ expenses as an emergency fund. You can invest this amount in an instrument which can be withdrawn in a short time. You can divide this amount into assets like bank’s short term FD, liquid funds, debt mutual funds. If your monthly expenditure is Rs 90 thousand, then you will have to keep about Rs 5.5 lakh as an emergency fund.
Step 4: How much retirement corpus should you keep
After estimating your monthly budget, you will have to calculate how big a retirement corpus you will need for such a regular income every month. If your monthly expenditure after retirement is Rs 90,000, then for such a regular income you will need a retirement corpus of about Rs 2.14 crore at the rate of 8 percent return. If you add emergency fund to this, this amount comes out to be about Rs 2.20 crore.
Step 5: Calculate your current financial situation
After estimating your future needs, you should see how much funds you have available as savings and investments. For this, you will have to calculate the money invested in your savings account, bank FD, Employees Provident Fund (EPF), insurance policy, PPF account and shares-bonds etc. Add all the savings and investments and see what your net worth is right now. Suppose, if you have savings of about Rs 50 lakh, which you can use for retirement fund, then you will have to raise at least Rs 1.70 crore more.
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Step 6: How much will you have to invest every month
To accumulate a corpus of around Rs 1.70 crore in 10 years, you can follow this strategy:
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If you invest your current savings of Rs 50 lakh in fixed return instruments, which give an annual return of around 8 per cent, then in 10 years this amount will become around Rs 1.07 crore.
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Apart from this, if you invest Rs 35,000 every month in the form of SIP, then at an annual conservative return of 10 percent, a corpus of Rs 72 lakh will be accumulated. If the annual return is 12 percent, then you will be able to accumulate a retirement corpus of about Rs 81 lakh.
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To get such an average return on SIP, you will have to invest most of it in ELSS and other equity funds. You will also be able to save tax by investing in ELSS.
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If you invest your existing savings of Rs 50 lakh in fixed return assets, your risk will also be balanced.
In this way, if you plan properly, you can create a sufficient corpus for retirement even if you start late. If you keep investing whatever increase in your income in the next ten years by stepping up your SIP, you can make your retirement fund even better. We have estimated the retirement corpus on the basis of an annual return of 8 percent, which is based on investing in fixed return assets. If you invest a part of it in equity funds, you will be able to beat inflation. You may have to cut down on your expenses to invest Rs 35,000 every month, but it is necessary to do so to live a safe and comfortable life after retirement.