435889 SIP myths you must know!
Don’t ignore inflation while working out the corpus as you might run out of funds post-retirement if inflation is not factored in
Retirement always remains a distant goal that we keep pushing because of other priorities in life. Putting off retirement, however, is not a good idea. For instance, if you start saving Rs 5,000 per month at the age of 20, you will be able to accumulate Rs 5.88 crore by the time you retire at the age of 60, assuming a rate of return of 12%. But if you start at the age of 30 you will accumulate only Rs 1.75 crore. The 10 years of compounding can work wonder if you start early.
But sticking to popular numbers is not a good approach to understand how much retirement corpus you will need at sixty. So, you need to know some actual or ballpark numbers to understand if you have sufficient corpus for meeting your post-retirement expenses.
Thumb Rule
Experts say that there is a thumb rule of 200 which you can use to understand if your retirement is on course.
“Always remember a simple formula which is 200 times of your monthly expenses. For example, for meeting monthly expenses requirement of Rs 50,000 you must have a retirement corpus of Rs.1Cr (Rs.50,000×200),” said Anil Chopra, Group Director – Financial Wellbeing, Bajaj Capital.
“Remember to invest the above amount in a mix of safe and secure schemes like Senior Citizens Saving Schemes, Pradhan Mantri Vay Vandan Yojna, Floating Rates Saving Bonds and Systematic Withdrawal Plans of Banking and PSU Debt Funds or other highly rated debt funds,” added Chopra.
The thumb rule is for people who are about to retire. But for people who are still far away from their retirement goal, need to put a number on their retirement age. Though the official age is 58-60 years in India, some want to retire early while others want to extend as much as they can.
Most importantly don’t ignore inflation while working out the corpus as you might run out of funds post-retirement if inflation is not factored in. The investments need to be planned in such a manner that you are able to beat inflation in both pre and post-retirement years. In addition, you need to understand your risk profile to understand where you want to invest as pre and post-return for your retirement corpus will depend on that.
Once you decide on all the above parameters, you can also use online calculators that are easily available for the calculation of your retirement corpus.