Planning for retirement is essential to ensure financial security in your golden years. It is ideal to figure out early on in life how much money you will need to have for a comfortable retirement. Even if you start with vague estimates and polish these figures later, it will help you have the foundation you need.
The amount of money you’ll need after retirement depends on your lifestyle, medical needs, and longevity. Here’s a guide to help you estimate your retirement corpus.
Estimate Your Monthly Expenses
Begin by calculating your current monthly expenses. Consider inflation, which can erode purchasing power over time. As a rule of thumb, expect to need around 70-80% of your pre-retirement income.
Your current monthly expenses commonly include housing, food, healthcare, and leisure. You may include any other non-negotiables specific to you. Use an average inflation rate of 6-7% to project future costs.
Using a Pension Calculator
A pension calculator helps you estimate the corpus required based on your expected monthly expenses, life expectancy, and retirement age.
For example, if your estimated monthly expense after retirement is ₹50,000, and you expect to live 25 years after retiring, you would need a corpus of around ₹1.5 crore, assuming a 6% return on investments.
Consider a Pension Plan
Investing in a pension plan is crucial for generating a steady income after retirement. Pension plans offer regular payouts and can be tailored to meet your financial needs.
Annuity plans available today are commonly of two types.
Deferred Annuity: Accumulate a corpus during your working years, which is later converted into a pension.
Immediate Annuity: Start receiving payouts immediately after a lump sum investment.
Factor in Life Insurance
A life insurance policy ensures your family is financially protected if something happens to you. This policy can help you cover the needs of your dependents, if any, in your absence.
Determining how much money you’ll need after retirement involves careful planning. The earlier you start making these calculations, the more time you have to start investing in the right avenues, create savings, shape your lifestyle, and have rather realistic expectations about retirement. Having a pension plan can help you have a source of income in the later years of life when you are not working for a primary income.