Financial Planning for Retirement

Make Your Retirement a Memorable Experience with Effective Retirement Financial Planning

Retirement is the second innings of your life, and you can make it a memorable one. Your responsibilities at work and towards the higher education of your children are over by then. In some cases, your children are earning and are married too!

It's now time to pursue your hobbies or go for that much-needed vacation with your wife, right!

Well, all these can be made possible with retirement planning!

What is Retirement Planning?

Financial planning is a tool to achieve our financial goals, and retirement is one of them. It is important to understand, however, that retirement planning does not start when you retire!

Like any other financial goal, the earlier you begin planning for retirement, the lesser you need to invest every month.

You can start a monthly systematic investment plan or SIP in terms of retirement financial planning to create your retirement corpus.

For example

Mr Aman Verma is a 30-year-old software engineer who wants to retire at 60. He expects to live till the age of 80.

Let us assume that the rate of return on investments is 12% before retirement, and the rate of return post retirement is 9%. Inflation is assumed to be 6%. Mr Aman Verma's current monthly expenses are Rs. 50,000/- per month.

Steps in retirement planning:

Calculation of expenses at retirement:

Current annual expenses Rs. 6 lacs
Inflation rate 6%
Years to retirement 30
Annual expenses at retirement Rs. 34.46 lacs

Calculation of retirement corpus:

Annual expenses at retirement Rs. 34.46 lacs
No of years post retirement 20
Post retirement rate of return 9%
Inflation adjusted rate of return 1.87%
Corpus required on retirement Rs. 5.7 crores

SIP to achieve retirement corpus:

SIP needed every month Rs. 16,309/-
Time horizon 30 years
Rate of return 12%
Retirement corpus Rs. 5.7 crores

In order to achieve the retirement corpus of Rs. 5.7 crores, Mr Verma would have to invest in a monthly SIP of Rs. 16, 309/-.

How Can the Goal Rate of Return be Achieved?

The goal rate of return can be achieved through the right asset allocation in the right asset classes through mutual funds. Asset allocation refers to the distribution of your investments in various asset classes like equity, debt, and gold.

Your asset allocation would depend on your risk appetite. Aggressive investors would have more equity in their portfolio; moderate investors would have a balance of equity and debt; while conservative investors would have more debt and less equity.

The best retirement plans ensure that the asset allocation changes according to the stage of life of an individual. When you are nearing retirement, the allocation is heavily tilted towards debt to prevent any fluctuations in your portfolio.

How Can Mutual Funds Help in Retirement Planning?

When it comes to retirement planning, mutual funds are a great tool to achieve your goal:

  • Varied options: Mutual funds offer different options for all types of investors. While mid and small cap funds are the most aggressive, liquid funds offer the most safety. A customised portfolio can be created with them.
  • Tax advantages: Mutual funds are more tax efficient; even for debt funds. Unlike conventional debt products like FD, mutual funds (growth option) attract capital gains tax only on redemption.
  • Flexibility: Depending on your needs, you can switch from equity to balanced funds or balanced to debt funds. If you are nearing retirement, you can switch (if the funds belong to the same mutual fund house) from equity to debt.
  • SIP: Mutual funds offer the systematic investment option or SIP, where you can invest as little as Rs. 500/- per month. You just need to give a bank mandate, and the money is automatically transferred from your bank to the fund.

Why Choose SRE for Your Retirement Financial Planning

If you are thinking of retirement planning, this is how we can help you:

  • Client centric: We analyse your needs and prepare your plan. We do not sell products for earning a commission or brokerage.
  • Counselling: Our Research Desk recommends certain mutual funds, but the choice is yours.
  • Expertise: Your plans will be created by Certified financial planners with extensive experience in creating financial plans for retirement.
  • Background: We have been in the financial services business for over 30 years.

So if you want to achieve your retirement goals, make an appointment with us today.