WHAT ARE THE THINGS TO CONSIDER WHILE CALCULATING THE RETIREMENT CORPUS?

The entire planning is an exercise to estimate various variables based on underlying assumptions and then create a concrete action plan for investment.

Some such variables are listed here;

Life Expectancy: What is the life expectancy of an individual, a pessimistic and difficult question but a rational answer is required. If your grandfather had life span of 100 years then long life is in your genes and therefore expect the post retirement life accordingly, in fact allow 10 years on the top since the life expectancy is increasing on average by 10 years every 20-25 years. So you know how many years of retirement life you should plan for and then do the backward calculation till the age of retirement and from then till today.

Time to Retire: Someone at the age of 50 needs to set aside more for retirement corpus than someone who has 35 years to retire. At 50 however your commitments are also high, children, parents etc., everything comes at one go. Someone at the age of 25 year may not have huge responsibilities and it is also the best time to start to get compounding benefit.

Monthly Cost Types: Write down your monthly regular expenses and identify the types of cost that you have now and what you will have after retirement. This way you can see which costs may increase the cost of living now and then,for estimating cost of living after retirement if you do inflation adjustment. You will see that medical costs, hospital trips, leisure and entertainment cost, fitness expenses etc., will be much higher after retirement.

Take Stock of Assets Now: Estimate value of your assets currently, see which pot needs to go up to reach the target corpus. As you go towards retirement age your physical assets allocations should come down to less than 10% of your corpus. Your assets should become more liquid and easily convertible to cash.

Dynamic Allocation: While you are saving towards your corpus remember that returns should not be less than the inflation else the real increase of the corpus does not take place. In fact the inflation has impact of reducing the real worth of the investment. During the accumulation stage your objective should be growth of corpus and not income for consumption. Equity is the only asset class which has consistently beaten the inflation historically. So you can invest regularly in the equity through mutual funds and let your corpus grow. The easiest way to do this is doing SIP – Systematic Investment Plan in equity mutual fund. As you come towards retirement age your equity holding should start reducing and the debt or debt related instruments should take more allocation.This mix of assets in your portfolio should shift as per your age taking into account the effects of returns and taxes.

Life expectancy, time for retirement, post-retirement period, your current and post-retirement expenditure, inflation, taxation and estimated value of your assets are some of the parameters which go into corpus building.

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