Retirement planning – How strong are your sails?

Retirement planning for most investors is broken. Just consider these news headlines:

58% Indians do not plan for retirement…

47% of Indians not saving for retirement…

That’s alarming and the problem is lots of people are still unaware if that is the case with them.

Are you one of them?

Consider this a yes, if you have not even thought of retirement planning.

A further yes, if you continue to invest in suboptimal products like pension plans of insurance companies and think contributions to provident fund is enough to lead you there.

Why do you do this? Reasons are not too far to seek.

Retirement planning is still driven by your hunches, which might be okay to start thinking about it but doesn’t make you ready nor shows you the roadmap to the goal.

You tend to believe that somehow you will manage to do it. After all, your parents and all the people you know have done it too.  

We have no sense of the numbers since we never did them. Since you don’t know the numbers, you do random stuff hoping that it will take you to the shore of a comfortable retirement.

So, here I pose some questions to you to help you think. 

1. How much minimum money do you need to retire?
   • 10 times of your annual income at retirement
   • 5 times of your annual income at retirement
   • 20 times of your annual income at retirement
   • Don’t know
2. If you retire at 60, and given the current life expectancy, how long do you need to provide for your post retirement expenses?
   • 15 years
   • 20 years
   • 30 years
   • 40 years
   • None of these
3. If at retirement at 60, your annual expenses are 50,000 a month, then after 20 years, what will be the approx. amount adjusted for inflation Consider inflation at 7% per year. 
   • 1 lakh a month
   • 60,000 a month
   • 75,000 a month
   • 90,000 a month
   • None of these
4. Suppose you have a sum of Rs. 1 crore on your retirement. If your starting expenses are 50,000 a month on retirement and inflation is 7% per year and rate of return at 6% per year, how long will this money last.
   • 15 years
   • 10 years
   • 12 years
   • 18 years
   • None of these
5. Suppose you have a sum of Rs. 1 crore on your retirement. If your starting expenses are 100,000 a month on retirement and inflation is 7% per year and rate of return at 7% per year, how long will this money last. 
   • 8 years
   • 10 years
   • 12 years
   • 15 years
   • None of these
6. Suppose you are age 35 today and wish to retire by 60. Your current expenses (net of liabilities) are Rs 60,000 a month. How much money will you need? Inflation is 8% per year and returns on your investments at 10% per year.
   • 3 crores
   • 5 crores
   • 12 crores
   • 20 crores
   • None of these

If you need help, read this note and use the retirement planning calculator provided there.

Most of you are likely to get this incorrect by yourself so using the calculator will not be a bad idea.

Finally, you can reach the shore of retirement, safe and sound, but you need to get stronger sails – the correct understanding of the goal and the appropriate investments.

How strong are your sails?