Are you prepared for your retirement?

According to a BBC study, only 4% of the Indians have adequate retirement savings. Most Indians get serious about retirement savings only in their 40s or 50s. Are you also facing a similar situation and not saved enough for retirement? 

The first step in retirement planning is estimating the retirement corpus. It will depend on your life style, monthly expenses, inflation, and investment modes. The next step is taking stock of your  retirement benefits from your employer i.e. gratuity, leave encashment, pension  and any other income /assets meant to be used post retirement .The balance of the corpus should be arranged by regular savings. You can make up for the lost time and put your retirement back on track by review of the strategies and start saving early. 

The table below guide you how much you should save to generate a corpus of Rs 1 crore. Your savings amount reduces if you choose higher risky assets. It is also advisable to select multiple assets category to diversify the risk. But if the retirement is 10 years or less, you should not go overboard in investing all in risky assets. 

For one Crore Retirement Corpus(Amount in Rs)

Investment Vehicles

Interest Rate

(Assumed)

Savings per month

10 Years

15 years

20 Years

25 years

Life Insurance

6.00%

60,717

34,215

21,535

14,358

Provident Fund

8.50%

52,779

27,446

15,837

9,621

Bank Deposits

9.50%

49,836

25,057

13,936

8,139

ULIP's, NPS

10.00%

48,414

23,928

13,060

7,474

Balanced Funds

12.00%

43,041

19,819

10,009

5,270

Equity Funds

15.00%

35,886

14,774

6,597

3,045

How much to save from your income? 

The view on savings for retirement at young age varies between 10-20% of your income. But it will vary depending on your situation. One the good option is to opt for a higher deduction in the Voluntary Provident Fund (VPF).  NPS is also a good option with low expenses and the asset class is  a combination of Govt Securities, Corporate Bonds and Equities, The amount can be withdrawn after 60 years and must use 40% of the corpus to buy an annuity. 

Manage your expenses 

If there are not enough investible surplus, one need to bring lifestyle changes, buying behavior  and cut down on wasteful expenses. Warren Buffet says that if you buy things you don’t need, you may soon have to sell the things you need. Further one must be restrictive with the use of credit cards and it is desirable to use cash while making purchases.
Using cash in purchases pinches more than if you were to swipe your card.
     
Should you retire at sixty?

 If your retirement savings are not enough ,you may have to  postpone your retirement Similarly if you have saved  enough for retirement,you may examine early retirement  If you want to work longer you need to upgrade your skill and keep yourself healthy. To ensure gainful employment after retirement, keep in touch with the latest developments in your industry and develop a network of people who matter.

Last resort 

Reverse mortgage is now turning out to be a source of hope for many who do not have enough retirement savings. It  helps unlocking the value of the property. It is just the opposite of a home loan. In reverse mortgage, the bank starts giving the owner a monthly payment as a loan against his house. His/Her heirs will have to repay the reverse mortgage loan taken by him/her against the property. Now the monthly amount to be received under annuity of reverse mortgage is  tax-free. This can make you worry free financially in the  golden period of your life.

 

 

 

 

 

 

 

Last modified on Wednesday, 10 February 2016 07:00

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

6 comments

  • Sujata Aniruddha Sapkal

    posted by Sujata Aniruddha Sapkal

    Wednesday, 26 August 2015 12:08

    Reverse mortgage is very helpful and effective instrument to secure financial freedom at post retirement stage of your life.

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  • Sam

    posted by Sam

    Monday, 13 January 2014 06:28

    A valuable information for retirement!

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    posted by Jayesh

    Friday, 13 December 2013 11:34

    Wonderful information

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