How realistic is your retirement corpus?

Retirement planning is something which should be the top most priority even before your child’s education. However, people are often very emotional with their children and are ready to sacrifice everything for them, even their retirement planning. But here thinking rationally is way more important that thinking emotionally. When you ask people whether they have planned for their retirement or not, some say yes and on asking how, they simply say that it is being taken care by EPF (Employee Provident Fund), EPS (Employee Pension Scheme), PPF (Public Provident Fund), NPS (National Pension Scheme), etc. There are some people who just run over the internet and apply certain rules such as multiplying desired income in retirement by 25. However, one needs to understand that these rules are generic in nature and may lead to over or under estimation of retirement corpus.

How to go about it?
Though there are many retirement calculators available online, you may pick any one to calculate the corpus. Here the important thing is the inputs that you give. These inputs are dynamic in nature and would differ from person to person. So, you first need to decide your retirement age. In our country, it is around 60 to 65 years. No one can define the retirement period, even though you may consider life expectancy anywhere between 85 years to 90 years.

Then the main component in this calculation is expenses. You have to think of the expenses that you would need in retirement and drop those that you won’t require. Say, for instance you may not require child education or child care expenses in retirement, so you should drop these kinds of expenses. However, you may need healthcare expenses in retirement, so you should give due weightage to that expense.

Besides, you need to assume inflation. Though the current inflation is about 3 per cent to 4 per cent, but you should always be conservative with your assumption. Hence, you may assume an inflation of 7 per cent. You also need to assume expected rate of returns that your investments would generate. Here too you need to be conservative. So, expected rate of return of around 10 per cent to 12 per cent would be quite good. Now you have to put calculate all these values. It would show you the retirement corpus that you need and also it would show you how much lumpsum investment or monthly investment you need to do to achieve your corpus.

Now, if you have the amount to invest either in lumpsum or via SIP (Systematic Investment Plan), then go ahead. However, if you don’t have the required amount to invest, then, either you would need to consider cutting down on discretionary expenses or deferring your retirement by few years until you can save for achieving required corpus or you have to reconsider the expenses that you may have considered while calculating the retirement corpus.