Knowing what you want!

Figure out how much immediate money would you require, how frequently and from when onwards! Till that date your money can be in long term investments. Remember, this amount needs to be adjusted for inflation too. See, the longer you have to retirement, potentially higher is going to be your requirement due to the impact of inflation. As a thumb rule, 75-80% of what you take home today is what you will require post retirement. Don’t forget to include your post retirement expenses like a hobby or travel etc. as well. This is your annual cash flow requirement. Remember, you will probably save on tax paid per month too but will need to factor for an emergency fund to be set aside as well.

Now, against this total annual number, subtract any earnings or cash inflows expected. This could be EPFO / pension payments or rent on some property or income from such other assets. This is the net corpus needed on an annual basis.

Multiply this annual cash flow requirement with the number of post retirement years to get the total corpus requirement.

Arrive at the Savings estimate & a Savings Plan

Visit our goal planner here to find out how much money is required on an annual / quarterly / monthly basis to reach the total corpus targeted.

An important assumption to make here is the growth rate on your investment portfolio. This will depend on – a. how much to save; b. frequency of savings; c. rate of portfolio growth

It is important to note that higher the risk you assume, higher potential growth of portfolio you will carry. However, the level of risk (probability of loss and the frequency of portfolio going up & down) needs to be determined as per each individual. Lower risk with a reasonable level of return (as long as it’s higher than inflation) but compounded for a long period of time, can still deliver your targeted retirement corpus.

Deciding where to invest

You can choose between equity or fixed income schemes. As a thumb rule, your percentage allocation to equity should be equal to (100 - your current age). Within this allocation, for equity & fixed income allocations each, multiple mutual funds are available as ideal investment choices. Equity investments not only help you participate in the growth of profitable companies but also help you compound your money over time. Equities have been known to be the most effective means of countering inflation and hence it is important to have some exposure to equity in your ‘retirement portfolio’ while picking up investment options. Equity investments will give your retirement portfolio the growth it needs but with unpredictability & higher volatility. Fixed Income investments will give your portfolio the safety & stability when the overall markets are passing through major ups & downs, however, deliver lower but more predictable returns.

We would suggest park in both asset classes – equity & debt depending on your risk appetite. It is prudent to keep rebalancing your portfolio every year. This means to invest whatever extra you have earned into fixed income instruments or if markets have seen sharp falls, perhaps shift some part of debt allocation to equities to help it rebound faster. As you grow older and near your retirement also, it is important to preserve your gains and hence your initial allocation also should change in favor of safety of fixed income instruments.

Start saving & cutting costs!

Put your plan into action! It is good to have built a plan. It’s now time to put it in action. Start implementing the investment plan that you just arrived at first by setting aside money as per plan before your monthly consumption eats into it. Also find ways and means of reducing your cost of living and minimizing wasteful expenditures.

An important aspect to take care of your liabilities. How many loans are currently running that you need to pay off? As interest paid on the same eats into your retirement corpus right away. So try to pay off all your debts and ensure there is no debt that you take to your retirement.

Contact your Financial Advisor

The sooner you start with these steps for retirement planning and investing towards it, the more it will grow and benefit you. It’s good to have a professional financial advisor help you converting this knowledge into action. So start right up and connect with us on VeezCapital