Failing to plan is planning to fail. While our best laid plans may go awry given the glorious uncertainties of life, there is still no excuse to plan. Sometimes, it is difficult to visualize, especially when we are young, what will happen to us when we are old and when we are unable to work. The place where I live, I see many parents living with their kids. In some cases, they live due to financial reasons. In some cases they live for emotional reasons. However, in most cases, I find an underlying stress. To be frank, at times, I spot a tinge of sadness. Sometimes, I also see loss of dignity. Financial dependence on your kids during your retired years can cause you lot of emotional stress and hence it is absolutely necessary to plan for a dignified retired life.
How much you need for a comfortable retired life depends on your current expenditure, inflation, time to retirement and your life expectancy. In the two charts below, I show how much you need to accumulate for retirement if your current monthly expenditure is Rs 50000, annual average inflation until retirement is 6% per annum, retirement age is 60 years and life expectancy is 85 years. In the right chart below, I also show how much you need to set aside for generating the desired retirement corpus. I assume your retirement corpus earns a rate of return in-line with inflation.
PLACE FOR A PICTURE
Key takeaways:
- Keep an eye on inflation. It will reduce your purchasing power and hence you need a bigger corpus. Rs 8 crore may sound like a big amount but 30 years down the line, it is the minimum needed to support your lifestyle (50000 rs monthly expenditure).
- The later you start , the more you need to set aside for retirement.
- Keep an eye on change in consumption basket and don’t underestimate your retirement expenditure. One might think that expenditure during retirement age may decline as you might start living in your own house. So you don’t have to pay the rent. You wont have to spend on your kids education. But remember there may be other things on which you might have to spend more. One thing could be your medical expenditure. Life expectancy is continuously increasing. It is always better to have more than what is the bare minimum needed.
Remember, money allows us to what we want to be and it may not solve all the problems but it can clearly help you to enjoy your retirement years with a little bit of comfort and lots of dignity.