RETIREMENT PLANNING
Preparing for Retirement
We are all aware of the need to invest and accumulate a fund sufficient enough to provide for our retirement. However, with other financial commitments this need is often not considered a priority until later in life, at which time it can be too late to accumulate the size of fund needed to provide a comfortable retirement. Most of the Indians suffer from lack of retirement preparedness which start showing its effect when they are close to retirement age.
Why should you save for Retirement?
– Inflation: Most people tend to underestimate the extent to which inflation can erode their purchasing power down the timeline of few decades.
– Medical Expenses : As people grow old, they tend to have higher health care expenses which were not there earlier. Expenses on medical care could grow at the rate of 12-15% annually as against inflation which can increase by 6-7%.
What should be done?
A simple rule of thumb suggests to take into consideration the expected lifespan post retirement and also keeping in mind the ever rising inflation.
Just to keep things simple, a 60 year old person who is expected to live for another 30 years should have an accumulated corpus 30 times his current annual living expense.
So if this person has an annual expenditure of 10 lakh, he will require 3 crores to maintain the current lifestyle over the next 30 years.