Retirement planning: Why it is crucial for a secure retired life
Retirement planning comprises two phases. The first phase is of accumulation, which is the phase when one is creating the corpus from which one can then dip into for the second phase which is income generation for life after retirement. Planning for both phases is important for effective retirement planning.
Retirement can be a beautiful phase of life provided one is adequately prepared for it. This is where retirement planning comes into play. The two key factors are the timing i.e.
when does one plan to retire and the lifestyle that envisages for life after retirement. Once these two factors are known, one needs to apply a factor to account for inflation. For example, if the current lifestyle costs an individual ₹50,000 per month and retirement is 10 years from now, a similar lifestyle would need the same ₹50,000 compounded by 5-7% over a 10-year period, which in this case would be anywhere between ₹85,000 to ₹1 Lakh per month.
This corresponds to an annual income of around ₹12 Lakh. Now, the corresponding corpus should be such that it yields a monthly “interest" equal to this amount. Going by the above example, if one were to assume an interest rate of 6%, then the corpus that needs to be created to get an annual interest of ₹12 Lakh would be around ₹2 Crore.
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