Planning a life after retirement will help you meet financial needs. It will also give you a peaceful hassle-free life. A proper calculation that you make today to invest in savings for your post-retirement saves your future. This article will give you a deep understanding of the retirement corpus, its calculation, and the best ways to build them.
What exactly is a retirement corpus?
Corpus is defined as the total amount that you invest in a particular scheme. A retirement corpus is an amount that you invest in schemes for your life after retirement.
A retirement corpus is part of the planning process for your post-retirement period. Retirement corpus helps you to plan the days when you don’t have a regular income.
What is the need for a retirement corpus?
- No one needs a stressful financial life even during the years when there is a regular income. How much more is it important when there is no regular income?
- Retirement corpus secures your life in your grey-haired period. Investing in retirement corpus will also save your loved ones.
- Building a corpus for your post-retirementmakes you live independently even in your post-retirement days.
- The corpus that you build for this purpose will help you in facing unforeseen situations and medical emergencies.
- Thiswill also help you in facing inflation when you don’t have a source of regular income.
- You can also have the advantage of leaving some amount for your generation using your retirement corpus.
- The amount you save consistently for a long period will also build the habit of pre-planning and saving.
5 ways to build a substantial retirement corpus
- Start with what you have: The sooner you start building your retirement corpus, the more secure will be your post-retirement life. So start with whatever you have. Don’t wait for the right time.
- Calculation: When you calculate a retirement corpus, the first stepis to calculate the years after your retirement. Then, you can decide how much money you need to meet your expenses daily. You have to take note of inflation.
- Systematic Investment Plan (SIP): Systematic Investment Plan is the habit of setting aside and investing some amount consistently regularly. Though your investment is small, SIP will help you have more returns.
- Saving vs Spending: It is always good to save and then spend. Don’t spend and save the remaining amount. This will help you to contribute more towards your retirement corpus. You will also control your unwanted expenses.
- Diversify Your Income Sources: Diversifying the income sources is multiplying your income. Many people regret due to insufficient funds only after retirement. To avoid this, you have to diversify your income. This will help you not to regret it too late in life. A substantial portion of the diversified income should be invested in your retirement corpus.
How to calculate retirement corpus?
Step 1: Calculate the age of retirement and the number of years you have till your retirement. For example: If your current age is 30 and your retirement age is 60, the number of years before retirement is 30 years (60-30 years).
Step 2: Life expectancy is the number of yearsa person lives on average. At present, the life expectancy in India is 70 years. But it is subject to change.
Step 3: Calculate your expenses for a year after your retirement.
Step 4: While calculating your expenses, take note of inflation. Inflation is the general rise in prices. The money value will not be the same when you retire. It is always advised to fix inflation as 6% to 8% when you calculate.
Step 5: Now you can calculate the exact figure of your retirement corpus. The formula used to calculate this retirement corpus is
|FV = PV (1+r)^n
FV- Future Value (monthly income needed after retirement-with inflation- INR 30,000)
PV- Present Value (monthly income needed now)
r – expected inflation (say 6%)
n – period till retirement (60-30 = 30 years)
So, FV = 30,000 (1+0.06)^30 = INR 1,72,304 per month
for 1 year, you have to multiply the answer by 12 (since 1 year= 12 months)
Therefore, 1,72,304 X 12= 20,67,648
The annual income you require after retirement is Rs 20,67,648.
Besides, you must also consider
Life Expectancy= 80 years
The period from retirement to the end = 20 years
Rate of return on investment = 8%
Expected Inflation Rate = 6%
Thus, Inflation-adjusted rate of return = (1+0.08)/(1+0.06) – 1
= 1.89%/12 = 0.001575.
The monthly savings you need to get the fund is INR 27,680
Where to invest for retirement corpus?
You can invest in some of the important government schemes like PPF and EPF. There are many such government schemes for building your retirement corpus. They include the Senior citizen savings scheme (SCSS), Atal Pension Yojana (APY), National Pension System (NPS), etc. You can also choose non-governmental schemes.
|Public Provident Fund PPF (Public Provident Fund) Scheme is the most secure option for long-term investment and saving in India. The main purpose of the PPF Scheme is to invest a small amount of money and get a return for that. The PPF scheme is guaranteed fully by the Central Government of India.You can start to invest from INR 500 to 1,50,000. This account can be opened only by Indian citizens. Post offices and other participating institutions can be accessed for opening a PPF account.Employees Provident Fund An Employees Provident Fund (EPF) is a saving scheme for building a retirement corpus. Both the employer and employee should contribute 12% every month to the EPF account. The interest return for EPF is higher than the PPF Scheme. The amount will be deducted directly from your salary to the EPF Account.EPF is managed by a statutory body called the Employees’ Provident Fund Organisation (EPFO). EPFO is currently under the Indian Government’s Ministry of Labour and Employment.
The bottom line
We hope that you understood the importance of retirement corpus and the effective ways to build it. Start building your retirement corpus as soon as possible. The financial experts of Piramal Finance will help you decide on the investment. We also make customised calculations on your retirement corpus. Kindly get in touch with us for further doubts. Wishing you a financially independent life after retirement!