Most people are not able to set aside the amount of money needed for their retirement. Because, they are either contribute only a part of it or not at all and ultimately, have they ended up postponing their retirement plans. As a result, they are found the deficit in their required retirement corpus at later stage. The right course of action lies in accepting retirement as an eventuality and being adequately get prepared for it. And making an early start is your best course at being prepared.
Our objective therefore in illustrating this scenario is to understand how you can get prepare fund planning for your retirement. For you to be able to draw up a personalized retirement plan, you will need the services of a financial planner. Let us now get acquainted with retirement planning process of an individual.
Mr. Prasad is aged 48 year old married individual and is currently working with Textile Company as a Senior Manager (Production) in Ahmadabad. His wife is the only member of his family dependent on him. Mr. Prasad wants to retire at the age of 58 years and had a family history of longevity over 80 years so he has assumed to have his life expectancy at 87 years.
Mr. Prasad is currently earning Rs. 80,000 per month, while his monthly outflow is Rs.52,000 including insurance premiums and mutual fund investments. His children have already got educated. He is adequately insured and has created an emergency fund of 6 months of living expenses and has been maintaining this corpus in flexi-deposits and partly keeping in his saving account. He wants maintain the same level of life-style post his retirement.
Since he is nearing the retirement, Mr. Prasad is worried about how much corpus he is going to be needed and whether or not he will be able to build this corpus in his remaining 10 working years.
Retirement Corpus Required
Taking into consideration the above information, let us see how much he is required retirement corpus being at retirement?
| Current Monthly House hold Expenses |
Rs.32,000 |
| Post Retirement Monthly Current Expenses |
Rs. 32,000 |
| No. of Years left for Retirement |
10 |
| Retirement Year |
2023 |
| Life Expectancy in Years |
87 |
| Estimated Post retirement Expenses p.m. |
Rs. 69,085 |
| Retirement Corpus Required |
Rs.2,11,94,287 |
*Pre and Post Inflation rate on expenses assumed @ 8% p.a. and Post-retirement return assumed @ 9% p.a.
Going by his desire to maintain same life style post-retirement years, Mr. Prasad would require approximately Rs2.12 crore for his rainy days till 87 years of age. He may have instead set the target of Rs 2.30crore. Though retirement planning is a long-term process, Mr. Prasad is sitting pretty despite just ten years to go in his case.
Utilization of Current Assets and his Retirement Benefits
Mr. Prasad is expecting to get gratuity of Rs 20 lakh and expects his EPF maturity to be Rs50 lakh at the time of retirement. Over and above this, he has already accumulated Rs10 lakh in mutual fund till date and currently has been investing Rs 10,000 per month which if further grows by 12 per cent will amount to Rs53.46 lakh in ten years. This leaves him with a target to accrue the remaining Rs 88.54 lakh. He also has Rs 28,000 surplus saving per month that can be invested in mutual funds expected to grow@ 12 percent towards his retirement. He has still remained left shortfall of approximately Rs 25.81 lakh.
Bridging Retirement Gap
Thus, Mr. Prasad has, now three choices to bridge his retirement gap corpus as he can either post-pone his retirement by some time i.e. increase his number of earning years or can entail curbing his current expenditure to save and invest a higher amount today or can increase his required annual investment by 10% per annum. By choosing one or all of said solutions, Mr Prasad will be able to build his retirement corpus that he needs, to live his golden years in financial freedom. The Post-retirement corpus can be invested into fixed income products and should stay away from any market risk and volatility as comfortable retirement is a non-negotiable goal which has to be managed with due care.
It is important to note however, that upon the end of his 87th year, the funds would have been entirely exhausted; hence it is always better to assume a longer life expectancy and plan accordingly – rather than run the risk of outliving your wealth and then being dependent.
Key Learning from the above case
We have said this before and we will say it again. Start planning for retirement now! Even if you have just started earning, even a small contribution can make a huge difference Post retirement expenses can increase significantly due to higher chances of falling ill; so make a provision for medical expenses while planning for retirement. Due to medical advancement life expectancy has increased, so do not get underestimate it.
If you too want to plan for your retirement but don’t know how to start with it, then do not hesitate to call us on +91 9816002197. You can also Schedule a Call Free Meeting with our principal financial planner or even drop a mail at info@prudentfp.in and we will get in touch with you. We would be happy to plan your finances prudently to help you achieve your life goals
“Planning is bringing the future into the present so that you can do something about it now”- Alan Lakein
This case study has got published in Business Bhaskar on 09-Mar-2014
Suresh Kumar Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner’s Guild, India. He is also a member of Financial Planner’s Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in