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Retirement is the time in your life when you have fulfilled all your responsibilities and is the time to reap the benefits of your hard work. The most important goal while planning for your retirement is to ensure you enjoy the same financial independence that you currently have.
Based on one’s current age, planning for the golden years will be different for every individual and will also depend on the unique requirements of the person. Many people delay the planning thinking they have plenty of time; however, beginning as soon as possible will go a long way in ensuring your financial independence post retirement.
Determining your retirement corpus
The first step towards retirement planning is to calculate the corpus you would require to sustain your current lifestyle after you stop working. To achieve this, you can follow the below-mentioned steps.
- Depending on your age, you must calculate number of working years remaining and life expectancy
- Next you must estimate your current living expenditure per year
- Consider an inflation rate to calculate the annual amount needed to sustain your current lifestyle post retirement
- Finally, adjust the real rate of return on your investments by considering the Return on Investment (ROI) and inflation rate to determine the corpus you need to accumulate until your retirement
Planning your retirement
The initial base for developing retirement plans includes your present age and expected age when you retire. When this period is long, the portfolio is able to withstand higher risk because negative returns are mitigated due to the longer duration. Having calculated your estimated expenses post retirement, you need to identify investment vehicles that will help you accumulate the necessary corpus. Before you decide to park your funds in one or more of these instruments, you need to assess your risk appetite.
A major risk for the failure of pension plans is the faster depletion of the corpus. Often known as longevity risk where the person lives longer than anticipated, outliving the accumulated corpus. Balancing your portfolio to combine risk-returns objectives is important. If you are unable to achieve this, it is advisable to hire the services of an experienced financial advisor and portfolio manager.
Simple steps to calculate corpus using Excel
- Estimate your current expenses and project future outflows after considering a specific rate of inflation
- Determine the expected return on your portfolio and adjust it with the inflation rate to arrive at the real rate of return, which is used during the withdrawal stage
- Finally, you can calculate the monthly or annual savings / investments you will have to make beginning today to achieve your goal. Pension plans can play a significant role in helping you achieve your objectives.
About HDFC Life
HDFC Life, one of India’s leading private life insurance companies promoted by HDFC Ltd. & Standard Life Ltd., offers a range of individual and group insurance solutions. HDFC Life’s product portfolio comprises solutions, which meet various customer needs such as Protection, Pension, Savings, Investment and Health.