How To Plan For Your Retirement

Imagine yourself spending your “golden years” on a beach. No past debts or future savings to worry about. After all, you have worked so hard for all these years to earn this relaxed life in retirement.

However, this dream may be in jeopardy if you don’t plan well. Your dream could be more expensive than you thought, especially if you have 10 years or less until retirement. Our analysis of data from approximately 76,000 users of the BigDecisions retirement calculator found the following:

With less than 10 years to retire, one has to save roughly 3-times their monthly expenditure in order to fund their post-retirement life. Needless to say, this can take a huge toll on your monthly income and current lifestyle. Not to mention that this is nearly impossible to do. So does that mean you should compromise on that coveted retired life?

Start early

Not if you start early on. Building a retirement corpus at the start of your career will prove to be beneficial in the long run.

The first and foremost advantage is that you’ll have time on your side. Assuming you start saving at 25 and wish to retire by 60, you’ll have 35 years to invest towards a retirement kitty which will enable you to continue your current lifestyle—even when the source of income is nil.

However, as the time to retirement decreases, the rush to meet the target will intensify.

According to the table, users in the age group of 25-30 will have to save 1.1 times of their monthly spends to have a comfortable retirement by age 60. However, this savings ratio increases drastically to 2.4 times if they plan to retire by 45-50. Similarly, users in the age group of 30-35 need to save 2.7 times of their monthly spends while those belonging to 35-40 need 3.1 times of their expenses, in case they plan to hang up their boots in the next decade or so.

For the age group of 40-45 & 45-50, who are nearer to their retirement age, building that corpus can become an uphill task. With lesser number of years at their disposal to reach the target (60), they will have to save twice and 2.7 times, respectively, of their monthly expenses.

Earn better returns

The power of compounding in finance is stressed highly. If you start saving early, chances are you will be able to build a large corpus effortlessly. For example, to reach a retirement corpus of Rs 1 crore (assuming retirement age to be 60 and investments earning at 8%), a 25-year-old will have to save about Rs 4,400 per month for the next 35 years (total Rs 18.48 lakh), while a 45-year-old will have to save Rs 28,900 p.m. (Rs 52.02 lakh) for the next 15 years to reach a similar milestone.

Retirement planning early on in life not only lets you build a bigger corpus, but also imbibes a good level of financial discipline in your life and outlook. An early retirement plan helps you take control of your finances. It further prepares you for the added responsibilities and commitments that await in later years like a new home, a vehicle purchase, or children’s education.

Various studies conducted globally have shown that happy retirees are the ones who have planned well in advance to build their nest egg. Remember, a small step today paves the way for a secure tomorrow!

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