Decide the income you want to Retire at not the age. Stereotyping to the ages for Retirement, rather work on the income.
The famous saying by George Foreman – “ The question isn’t at what age I want to retire , its at what income”
By the time you start thinking about Retirement, it may be many years into working and settled for traditional products
If you start investing in the right product across asset classes, having a monthly spend number in mind your money will work hard for you.
A lot of people also think about legacy planning vs ensuring you have made provision for yourself and your spouse than depending on your children
Rather the best thing you can do for yourself/spouse is to not be dependent physically or financially. With the average age exceeding due to better health facilities, you may live much longer than you anticipate. Most old age surely needs physical dependence on children
Atleast by ensuring financial independence you may be physically dependent but not financially.
Assume you had 1 crore as retirement corpus and you were to retire by 60. With a 4% rate , and an outflow of 80,000 monthly, you would be able to sustain for only 13 years 5 months.
Ideally you should be able to sustain atleast 30 odd years after you touch 60. Thus is you want to retire earlier, you need your money to provide that much cushion.
Illustration:
Monthly Spend of Tina- Age 30 INR 60000
Assumed inflation- 6%
Monthly spend at 55- INR 2,14,593
Yearly spend at 55- INR 25,75,122
Post retirement investment return- 4.5%
Total corpus to last her till 90 years- INR 7,95,88,230
The table depict the following important things
a) You may think Retirement is far away
b) The corpus will be fairly large, and the lesser years you give it, the harder it will be for your money to work for you
c) Once you know the income you want to retire at, invest wisely to ensure you can attain that.
d) Traditional products will not help in creating wealth over long term. Investing by allocating to the right asset classes is key.
e) Own a separate health insurance other than your employer, the older you get a fresh health insurance will be difficult to get.
f) Health insurance coverage should be appropriate with the rising health costs.
g) Step up investments at regular intervals to take care of your lifestyle changes with increasing income.
In the above table assuming inflation of 6% and if you were totally invested in traditional investments (PF/Endowment or Moneyback Policies/FD etc.) in that time frame of investment your corpus growth would look like the below:
Invest p.m- Period of investment (in years) Amount invested in time period Total Corpus (in lacs) invested in PF/FD @ 7%
25000 25 75,00,000 INR 2.03 crore
By the inflation assumption, the value of your investment would be depleting every year, i.e. if you needed 60k per month today, after 25 years you would 2,14,593 per month when you are 55. Traditional investments will not make your money grow to match your growing expenses.
Thus, if in the similar example, you invested in products across asset classes (with a 10% return)
- Invest p.m- 25000
- Period of investment (in years)- 25
- Amount invested in time period- 75,00,000
- Total corpus (in lacs) invested in Asset allocated portfolio @ 10%- INR 3.34 crore
Start investing early and wisely, to have an income suitable to your lifestyle when you have no other income flows i.e. Retirement. Ensure appropriate asset allocation within your portfolios.
Author's Profile
Sneha Jain has a Master’s Degree in Accounting & Finance from the London School of Economics and has worked with reputed asset management companies like Pramerica Asset Managers Private Limited and HSBC Global Asset Management, India. In 2015 she started WealthTrust Capital Services. Her experience has been instrumental in developing the core offering including financial solutions and asset allocation strategies for its clients at WealthTrust.
