Plan in advance for your life after retirement

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Irrespective of whether you are a professional, or own a small business, everyone wants to have in possession substantial funds at the time of their retirement, so that they are able to spend the rest of their lives comfortably with their families. After all, it can be troublesome for someone who has taken care of his or her family till 55-60 years of age to financially depend on others to fulfil their needs. And to avoid such a situation, retirement planning is necessary. But what is retirement planning, and what factors should be considered? And most importantly, what is the 555 rule for retirement. Let’s find out about all this.

First, let’s understand what retirement planning actually is. Retirement planning is a continuous process, through which you prepare, during your earning years, for the years when you won’t be actively earning, which is retirement. In simple words, the regular investments you make for old age in your youth is retirement planning. When preparing a retirement plan, we need to pay attention to some things like such as:

When to retire?

At what age do you want to retire, 55 or 60 years? What kind of lifestyle do you want after retirement, a simple or luxurious one? How much money will you need during retirement and for how long etc.

If you want to have a substantial corpus at the time of your retirement, then it is necessary to understand the triple 5 rule. The 555 rule says that if you start investing Rs. 5,000 at the age of 25 in an equity mutual fund, then at the age of 55, your retirement corpus will be around Rs 1 crore 76 lakh. However, if you increase your investment by 5% annually, i.e step up  your investments by 5% every year, then at the age of 55, you will have Rs. 2 crore 63 lakh as your corpus. In both cases, an estimated return of 12% is assumed. However, in the long run, you can earn returns of over 12% in equity mutual funds.

Step-up SIP

The 555 rule of retirement instills a habit of regular investment, which is very important for retirement planning.. Many people start investing late, like when they turn 30 or 35. Some people want early retirement. Some people may need a large retirement corpus. In such cases, there is a need for some tweaks in retirement planning. There are two ways to do this. First, you start a large monthly SIP. If it is not possible to start with a large investment initially, then you have another option of a Step-Up SIP, which means you start with a small amount and then keep increasing your SIP amount every year.

For example, if you are 30 years old and want to retire at the age of 50. For your life after retirement, you will need a corpus of Rs. 5 crore. According to the Goal SIP calculator, to accumulate Rs. 5 crore in 20 years, your monthly SIP or investment should be Rs. 50,000. Here,  the estimated return is 12% per annum.

The second way is that you start with a SIP of Rs. 25,000. Through the Step-Up SIP facility, choose the option of increasing your SIP amount by 10% every year. This way, in about 20 years, you can create a retirement corpus of approximately Rs. 5 crore.

During retirement planning, people often make a very common mistake. They only think about arranging money for daily expenses. But they do not pay any attention to medical expenses. As age increases, the risk of illnesses also rises. So that your entire retirement fund is  not spent on medical expenses only, having health insurance is necessary. Remember, taking health insurance at a young age gives you greater coverage at a lower premium.

You must have heard of this quote that if you are born poor, it is not your fault. However, it is entirely your fault if you die poor. So, don’t make such a mistake. Start investing as soon as possible. The earlier you start investing for retirement, the better. Time plays a crucial role in creating and compounding wealth. The longer your investment time, the more your money grows.