Nothing beats the security and comfort of an assured and guaranteed pension payment which is received every month. When you retire, you do not have your income or salary to depend on. On top of that, the added expenses of healthcare, pursuing your hobbies, and other expenses just adds to the woes. Hence, it is very important to plan your investments and create a proper financial plan to ensure that you do not fall short of funds during your retirement. Retirement is often referred to as the golden era of an individual’s life. And to enjoy your retirement at its best, it’s important to have a sizeable corpus or a monthly income to help you live up to your current standard of living. Let’s understand how we can do that.
Let’s assume your current monthly essential expenses are Rs 40,000 per month. Assuming the annual rate of inflation at around 6 to 7% per annum, your current monthly expenses which stand at Rs 40,000 currently would value to around Rs 1.25 lacs to Rs 1.5 lacs after 20 years, which is a huge amount!You can calculate this using a mutual fund return calculator. Keep in mind that it is advised to have additional funds in your retirement kitty as your expenses are likely to go up as you grow and there’s no active source of income. So, how can you manage to earn Rs 1.5 lac per month after a period of 20 years?
An investor would need to invest a lumpsum of Rs 50 lacs for a period of 20 years. Using lumpsum calculator, you’d find that you would earn around Rs 3.6 crore if your fund provided annual returns at 10% per annum. However, had you invested a bit more aggressively by investing a majority of your portfolio in equity funds, let’s assume your fund generated annual returns at 13% per annum. In this scenario, your fund would turn into a whopping Rs 5.3 crore after a period of 20 years.Post maturity let’s assume the annual withdrawal rate at 4% per annum. This would equal to somewhere around Rs 1.2 lac (if your fund offered returns at 10% p.a.) to Rs 1.7 lac (if your fund offered returns at 13% p.a.), which averages out to Rs 1.5 lac per month.
If you do not have the means to accumulate and invest Rs 50 lacs at the moment, then you can consider making an SIP investment. Using SIP calculator, you would find that you need to save somewhere around Rs 47,408 to Rs 66,000 to ensure a monthly pension payment of Rs 1.5 lac per month. If you do not have enough funds to save Rs 47,408 at the moment, then you can consider investing a smaller amount and topping up your SIP investments each year by 10 to 15%.
Wherever you are in your life right now, do not delay your retirement planning any more. Remember, time lost is money lost. So, get on with your retirement planning even if you are able to save a small amount at the moment. Happy investing!