1. One of the biggest challenges for tomorrow's retirees is to ensure that they don't outlive their savings.
2. This is a distinct possibility because of two factors: the rising cost of living and an increase in life expectancy.
3. However, for many of us, retirement is not as crucial as saving for their children, either for their education or marriage, or even to provide them with a comfortable life.
4. This can be a problem because your retirement is going to be very different from that of the previous generation.
5. What's more, you will live longer, thus heightening the risk of outliving your money.
6. Retirement planning should be your first and most important financial goal.
7. You can borrow for almost all other goals, such as child's education, marriage or even for going on a holiday, but no one will lend you for your retirement expenses.
8. In order to build a retirement corpus, starting early is always beneficial as you will need to invest lesser per month for the same retirement corpus.
9. If you intend to retire at 60 years, you should accumulate a corpus equal to 25 times your estimated annual expenses after retirement.
10. Suppose you estimate your annual expenses after retirement to be Rs.6 lakhs, your retirement corpus at the age of 60 should, therefore, be Rs.1.5 crores, preferably in a Balanced equity fund.
11. Even when you are 35 years old, you can easily reach this retirement corpus through monthly Systematic Investment Plan (SIP) of Rs.12,000 for 25 years in a Balanced equity fund (even lesser SIP amount if you are younger, or in lesser time by increasing SIP amount over your earning years).
12. Whenever you achieve this corpus, you can easily keep withdrawing 4% (or even 5%) from it, i.e. Rs.50,000-60,000 per month, through tax-free monthly Systematic Withdrawal Plans (SWP) for meeting expenses during your entire retired life - while your corpus continues to grow too - even if you stop SIPs after retirement.
13. This also means that you can continue to maintain your today's lifestyle during your retirement too - just with a disciplined SIP investment during your earning years.
14. After you are no more, your successors can also reap a bonanza too from your corpus if you would have continued your monthly SIPs (possibly out of your monthly withdrawals) during your entire lifetime without any break.
15. During your earning years, you can even opt for an Equity Linked Saving Scheme Fund (ELSS), to avail an additional advantage of reaping Sec 80C tax benefits too, as your chosen fund for SIP investment.
16. Please bear in mind that the 4%-5% withdrawal rule presupposes minimum annual returns of 7-8% and maximum inflation rate of 3%.
17. Therefore, the mutual funds in your corpus should be in a position to maintain this differential whenever inflation rises.
18. Hence the necessity to invest in a Balanced equity fund (or an ELSS fund), instead of a pure debt fund, or else to maintain a similar debt-equity ratio if other funds are chosen in the corpus.
19. If you have other sources of income, say monthly rental income, or already have some amount in your retirement corpus, say monthly pension, you can get by with investing lesser in this SIP fund during your earning years.
2. This is a distinct possibility because of two factors: the rising cost of living and an increase in life expectancy.
3. However, for many of us, retirement is not as crucial as saving for their children, either for their education or marriage, or even to provide them with a comfortable life.
4. This can be a problem because your retirement is going to be very different from that of the previous generation.
5. What's more, you will live longer, thus heightening the risk of outliving your money.
6. Retirement planning should be your first and most important financial goal.
7. You can borrow for almost all other goals, such as child's education, marriage or even for going on a holiday, but no one will lend you for your retirement expenses.
8. In order to build a retirement corpus, starting early is always beneficial as you will need to invest lesser per month for the same retirement corpus.
9. If you intend to retire at 60 years, you should accumulate a corpus equal to 25 times your estimated annual expenses after retirement.
10. Suppose you estimate your annual expenses after retirement to be Rs.6 lakhs, your retirement corpus at the age of 60 should, therefore, be Rs.1.5 crores, preferably in a Balanced equity fund.
11. Even when you are 35 years old, you can easily reach this retirement corpus through monthly Systematic Investment Plan (SIP) of Rs.12,000 for 25 years in a Balanced equity fund (even lesser SIP amount if you are younger, or in lesser time by increasing SIP amount over your earning years).
12. Whenever you achieve this corpus, you can easily keep withdrawing 4% (or even 5%) from it, i.e. Rs.50,000-60,000 per month, through tax-free monthly Systematic Withdrawal Plans (SWP) for meeting expenses during your entire retired life - while your corpus continues to grow too - even if you stop SIPs after retirement.
13. This also means that you can continue to maintain your today's lifestyle during your retirement too - just with a disciplined SIP investment during your earning years.
14. After you are no more, your successors can also reap a bonanza too from your corpus if you would have continued your monthly SIPs (possibly out of your monthly withdrawals) during your entire lifetime without any break.
15. During your earning years, you can even opt for an Equity Linked Saving Scheme Fund (ELSS), to avail an additional advantage of reaping Sec 80C tax benefits too, as your chosen fund for SIP investment.
16. Please bear in mind that the 4%-5% withdrawal rule presupposes minimum annual returns of 7-8% and maximum inflation rate of 3%.
17. Therefore, the mutual funds in your corpus should be in a position to maintain this differential whenever inflation rises.
18. Hence the necessity to invest in a Balanced equity fund (or an ELSS fund), instead of a pure debt fund, or else to maintain a similar debt-equity ratio if other funds are chosen in the corpus.
19. If you have other sources of income, say monthly rental income, or already have some amount in your retirement corpus, say monthly pension, you can get by with investing lesser in this SIP fund during your earning years.