Are you saving enough for retirement?

All good things come to an end, said Geoffrey Chaucer in his famous poem, ‘Troilus and Cressidae’, written in the fourtheenth century, and this little axiom holds as true today as it ever did. Our working years – that golden period which seems so less-than-golden when it lasts – of earning a regular paycheck come to an end some day as well. For those of us in corporate careers, that will be when we reach a certain age, and even for professionals, the day does eventually arrive when the brain says ‘enough’. ‘Retirement’, we call it, and many of us, as we sit in our corporate cubicles, awaiting the end of the working day, look forward to it.

Any why not? After all, retirement is when we are able to relax, spend some time with our loved ones and stop thinking about meeting the next target and deadline.

But the fact is, retirement also means that the regular paycheck stops, and management of money becomes or primary importance at this time in our lives. Most of us who are young today would not want to be be dependent on our children in later lives, which means the importance of saving enough money that we can live with dignity later in life is paramount.

But look around you – and in the mirror – and ask if you and your friends are really prepared for this eventuality. The answer, in most cases, will be – no!

So the first thing you need to do is start saving for retirement. This means creating a sufficient amount of savings that, properly invested, will yield sufficient returns to allow you to live at your present lifestyle. This means figuring out the amount you need to earn by the age you intend to retire.

But how does one do that? Well, there are a number of calculators available on the internet (simple Google ‘Retirement Savings calculators’). We shall try to break down some of the thing you need to know in order to answer this question:

  1. What is your current monthly expenditure?
  2. When will you retire?
  3. Your family history of medical issues and expenditure
  4. Life expectancy (no easy way to predict this, but if your grandparents lived beyond 70, the odds are that you will make it to 80 if not beyond).

Now the important thing is to calculate how much money you will need when you are a retired person. For this, take your present monthly expenditure on yourself and calculate how much it will be on the date you retire after factoring in inflation.

E.g. Age: 30. Retirement Age: 60. Monthly Expenditure: Rs 30,000

Expected inflation rate – India’s long-term inflation rate is about 7.5%

Amount that will be equivalent to Rs 30,000 today after 30 years : Rs. 300,000 (approx.)

It’s a good idea to add on 10% to this amount to factor in the increased cost of medical care that may not affect you now, but most likely will as you grow older. Using our example above, this means Rs 330,000 per month, or Rs 39.6 lakhs per annum.

This means your savings should be sufficient to earn that increased amount when you retire. Assuming your investments yield 7% from the time you retire (this is a rather optimistic rate, since India is unlikely to continue to grow as fast as it is now, so perhaps a lower rate can be chosen).

This gives us an amount of about Rs. 5.6 Crores.

Depending on what the numbers are for you, these figures would vary, and it is important to keep in mind that these savings are over and above any potential Life and Medical insurance policy that you may have (and you must).

So run the numbers and ask yourself if you are, indeed saving enough for retirement – and if not, start NOW!


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