Retirement Planning – How much you need and when to start saving

Retirement Plan

A lot is written on retirement. “Start early” has always been the advice of all the planner. But how many follow? I know it is easier said than done. There is always the next thing on the to-do list which needs to be bought be it something for kids, their education, marriage, or for the house and the list is a never-ending one. But to avoid situations where we saw in the first article ( on retirement planning where you need to cut expenses during your retirement best to start early.

The recent pandemic has thrown everyone’s calculations in the air. Again if there is a plan in place you will not be too off track for long. I am not saying to start saving right away. But if you have calculated the amount you will require post-retirement you will have an approximate idea as to how much you will require at the time you retire and how much you will have to start saving from now.

Let us see the calculation –

The general opinion has always been that once one has saved Rs one crore you are all set for retirement. Here is where all of you are wrong.

Every individual’s retirement corpus is different, as loads of factors have to be taken into consideration for calculating the right amount of corpus. So what are these factors? There are two ways one can calculate one’s retirement corpus. The first method is where you take your income into consideration. The second method is where you take your expense consideration.

Individuals who are below the age group of 50 or younger should take their income into consideration, as their expenses are still not fixed since the children are still small and other responsibilities are more. Individuals above 50 should take their expenses into consideration, as they are pretty certain as to how much their expenses would be.

Increase in expenses certainly should be factored in. Listed below are factors for both the approaches:

Income Method Expensed Method
Current Age Current A
Expected Age at Retirement Expected Age at Retirement
Number of years left for retirement Number of years left for retirement
Life expectancy at death Life expectancy at death
Years after retirement Years after retirement
Current annual INCOME Current annual EXPENSE
Expected annual growth percentage in INCOME Expected annual growth percentage in EXPENSES
Annual INCOME at retirement age Annual EXPENSE at retirement age
Rate of return on Retirement Corpus Percentage of the annual expense required after retirement
Inflation rate Required annual expenses at retirement
Inflation-adjusted Rate of Return Rate of return on retirement corpus
Retirement corpus Inflation rate and retirement corpus


The above table will give you the corpus required for a comfortable retirement. How much to save to reach this corpus depends on the factors given below. These are same for both the methods:

  • Rate of return during the accumulation phase
  • Existing invested corpus
  • Number of years to retirement

The above factors will give you the amount you need to start saving from now to reach the corpus.

Note: I cannot stress enough the importance of mediclaim in place starting from a young age as with advancement in age your premium amount will increase and also after a particular age it starts getting difficult to get medical insurance. This should also form an important part of your retirement planning!!!

Budget should you worry or invest wisely – finale

Budget should you worry or invest wisely

With budget around the corner and a sluggish economy, everyone is worried and eagerly waiting for the Finance minister to dish out something exciting or wave a magic wand and make everything oki!! Everyone is hoping for a tax cut or some other similar gifts. But the irony is without tax income how do you expect the government to increase spending for infrastructure and how to do you expect the government to infuse much needed money into the economy.

So how does Tax revenue affect growth?

The last two years, that is 2018-2019 and this current year, the tax revenue has decreased considerably.  In fact this year for the first time in two decades, there has been a fall in the direct tax collection. Direct taxes account for almost 80 percent of the total tax collection.  As per reports as published by the Economic times – The Income tax department has been able to collect Rs 7.3 trillion till January 23rd which is 5.5 percent below the amount collected same time last year. The Government was targeting at collecting Rs 13.5 trillion but with the decrease in the businesses cycle, this target looks unachievable.  The effects of this can be seen on government spending as well.  In the current scenario, without government spending, the revival of economy seems difficult.  Also, indirect taxes are out with coming of GST whose committee meet every month to analyse and bring out reforms as and when they seem necessary which has been far and wide and with time, the GST reforms are settling down and hence less changes happen over time.

What has tax collection should concern you regarding your investment decision?

PROBABLY NOTHING.  Although decrease or increase in income tax affects investments amount but tax rate cuts or increase should not affect your investments decisions.  Why –

  • Achieve goals – why does a person invest? Reasons can be numerous like buying a house, car, retirement, children or in general being rich. SO your investments are decisions which are based on achieving these goals and not on budget.
  • Insurances – an individual will always require medical and life insurances; budget or no budget, slow down or no slow down. You already have a tax benefit for this category and trust me, no finance minister is going to take away tax benefit on insurance premium paid. So an individual planning on renewal of medical insurance or buying new policy, should not be waiting for the budget but should just go ahead.
  • Emergency funds – emergencies come unannounced and one always has to be prepared for it. How – by keeping at least three months worth of cash’, equivalent to your mandatory expenses, aside in liquid assets. In other words, funds that are readily available. Will budget change your decision about keeping aside emergency funds?,    Even for selecting the liquid asset for investing, budget should not be a factor in your decision.
  • Retirement – retirement planning is a long term planning, especially for individuals in their 20s, 30s or 40s. You should be looking for something like a long-term Systematic Investment Plan (SIP) or investment in assets like real estate. This decision should never be based on budget, as you cannot predict every years budget’ and the changes it will have on your asset class, and churn the portfolio accordingly. In fact you will stand to lose out more than gain with such a strategy.
  • Investments – where to invest, what to invest in, how long to invest, these are all variables which are in your control and which has to be aligned with your needs and goals and not with external factors such as Budget.

This years budget is much awaited and hyped due to slowing economy and there is hope that there will be certain announcements that will make business environment more conducive to growth and consequently result in better cash flow in the our hands.

That being said, Budget is not a magic pill that can solve problems overnight.  These are problems that plague the world and are not just ours.  It will take time to get back on its feet.  Till then we have to more concerned about our own financial goals and needs and undertake investments based on these and not what the Budget has to offer.