5. How do I plan for my retirement?
Retirement planning is a multistep process that evolves over time. To have a comfortable, secure and relaxed retirement, a financial cushion is important to be built to fund it all. This is so important that saving for retirement in the form of contribution to your provident fund is compulsory in salaried jobs and deducted from your total salary and the rest is available to you. However, this may not be sufficient.
The key steps involved in planning for your retirement are:
- Determining your Time Horizon for Retirement
- Determine Post-Retirement Spending Needs
- Estimating the corpus required to fund the entire post retirement costs
- Assess Investment Goals & your Risk Tolerance
- Calculate Investment Returns (after tax) based on all three steps above
- Taking adequate Life and health insurance cover
Estimating the post retirement expenses correctly is important in retirement planning. For most people retiring usually means after attaining the usual retirement age around 60 years. Usually by this time you are an empty nest because your children would have grown up and become financially independent. This makes it easy to estimate your expense post retirement which is usually the expenses of your spouse/partner and yourself.
So take your current expenses and remove those that you are not going to incur post retirement, usually bring up your children expenses, travelling to work etc. This will increase at the rate of inflation over the time period till you retire.
You would need to plan for other big ticket goals like children higher education and marriage, and other expenses separately.