Since the launch of Kaun Banega Crorepati (KBC) reality quiz show about two-and-a-half decades ago, the crorepati status has become the standard ambition for common people throughout India. Most people think they would be able to lead a comfortable life – even post-retirement -- just by becoming a crorepati.
In fact, retirement planning has established itself as a popular trend because people want to establish financial independence together with security during their retirement period.
However, the reality may be different. The fact is, retirement represents a vital life stage which requires thorough financial organisation, and a corpus of Rs 1 crore may not provide sufficient retirement security.
It may be noted that numerous important elements require evaluation when calculating retirement funds. Although the number appears significant to most people, one needs to take into consideration several important factors.
Rising Costs
The value of your savings diminishes over time because inflation drives up the prices of goods and services. So, proper retirement planning must include this adjustment.
“The value of money diminishes because of inflation which leads to a decrease in purchasing capability over time. The expected amount of Rs 1 crore or any other set sum will fall short if you fail to account for inflation rates. The target must receive adjustments based on inflation rates and purchasing power index values. A retirement corpus with increased target numbers will provide enough money to achieve a retirement life that maintains its purchasing power,” says Santosh Joseph, CEO, Germinate Investor Services LLP.
Lifestyle Expenses
Each person has their own distinct retirement requirements and personal goals for their post-retirement years. People have diverse financial needs in retirement because some choose simple living while others want more extensive travel and leisure activities and healthcare services. Your post-retirement spending evaluation stands essential to determine the exact retirement fund requirements.
“Your present way of living will likely change substantially when you reach 60 years of age. The current expenses that make Rs 1 crore sufficient for you now will not meet the needs which will emerge over time. You should always incorporate lifestyle changes into your retirement corpus planning strategy,” adds Joseph.
Healthcare Expenses
Healthcare expenses continue to increase as time goes by. As such, retirement planning should prioritise medical expenses and insurance costs along with long-term care expenses as fundamental components.
Life Expectancy
Improvement in healthcare, nutrition and lifestyle have led to higher life expectancy. Financial self-sufficiency during retirement requires an extended duration because of this increase in lifespan. Planning for longer lifespans than expected helps ensure that you don't outlive your corpus.
Investment and Returns
Retirement planning heavily depends on the strategy used for investments. The selection of investment instruments determines how well you can reach your desired corpus target.
“A successful investment portfolio requires proper asset diversification combined with suitable risk-return management. Your investment portfolio should include equities, mutual funds and fixed deposits together with other financial instruments based on your risk profile and financial objectives,” says Adhil Shetty CEO of Bankbazaar.com.
In a bid to create the foundation for financial security, one needs to begin retirement planning early. Let’s examine a situation where an individual aged 30 begins putting Rs 10,000 each month toward retirement savings. This person would have invested around Rs 36 lakh by the time he reaches 60 years of age. The investor would accumulate around Rs 1.5 crore in retirement savings given an average return rate of 8 per cent. The same person starting their retirement planning at 35 years old would find it difficult to reach a similar corpus despite investing higher monthly amounts. A monthly investment of Rs 12,000 for 25 years until retirement would result in a total corpus of around Rs 1.15 crore.
However, while making these calculations, we have not taken into consideration the rate of inflation. If we also take that into consideration, the value of the corpus would become much less. And that would hardly be sufficient for retirement.
Additional Sources of Income
Your retirement savings, therefore, should be complemented by additional income sources that you plan to use after retirement. You can generate income from rental properties and pension plans together with annuity contracts.
Your financial stability will improve when you add these income streams to your savings. Thus, several essential factors, including lifestyle requirements, inflation adjustments and healthcare expenses, need consideration when evaluating the retirement amount of Rs 1 crore. A secure retirement depends on ongoing assessment of retirement plans with adjustments based on changing life situations.
