How Much Money do You Need To Retire
Bangalore: The very first step towards a healthy financial planning is to set aside some income for retirement saving. This planning is based on several factors like how long you want to work, your lifestyle you want to live. Retirement savers need to figure out how much money they need to accumulate and make sure they have the sufficient money.
Before you could even proceed with this something that you need to answer to is, how much will you spend each year once you are retired? How many years do you have till retirement? Consider the inflation and also expected returns.
Also consider the fact that a retiree or senior citizen has its own benefits too. The tax you pay will come down and the interest rates you get on your deposits also goes up. You can also get special rates at hotels, transportation's etc. Consider those points also while planning your retirement
Consider you are 35 years old and you plan to retire at the age of 60. Assume that your current yearly expenses are 
2,40,000. The inflation is at 8 percent, rate of return in investments made today till retirement to be 15 percent and rate of return on investments expected after retirement to be 6 percent. It would be wise if consider a higher amount rather than 2,40,000. Consider 25 percent to 30 percent more than the target amount. We have noticed the inflation declines between 1994-05 to 5.8 percent and again surges to 11.3 percent in the period 2005-10. Therefore looking at the altering inflation rate one should try to increase their investment by 5 percent.
Dasgupta, a 40 year old man earning 6 lakhs per year after taxes, wants to retire at the age of 65 years. He will need around 5 lakhs or more of annual income post retirement. He currently has 10 lakhs in investment & savings, and will receieve a company pension of 20,000 per month. Dasgupta would needs around 5 lakhs per year which comes to 40,000 rupees per month. If we subtract his company pension, he will need to fund 20,000 to manage his standard of living. We will assume that Dasgupta should be able to earn 6 percent annualized returns (after considering inflation), he will need atleast 41 lakhs or more (2.5 lakhs / 0.06). In India the current Inflation is running above the 10 percent mark but is has been around the 8 percent range over the past many years. So he needs 40 lakhs as of today's money 25 years from now. So to include inflation, we will multiply that number by 1.08, 25 times. Inflation adjusted Value is 40 lakhs will 273 lakhs or 2.7 crores.
So basically you need to check your current monthly expense so that you can analyze how much money you would require on daily basis after your retirement. Because if inflation strikes the cost of living gets double. And your current expenses will not remain constant. Retirement may allow you to cut back in some areas, like commuting, work clothes, and lunches out. But other costs will probably increase, such as health care, entertainment, and perhaps travel. You need to estimate your retirement expenses.
After this analysis you have an estimation of what needs will be covered by your pensions and what are the needs you got to start saving for. And then figure out how much to invest in order to save 2,40,000.
Take this amount and divide it by the return you think you'll earn on your investments. Consider 5 percent. When you divide the total amount by 5 percent, this will be your target amount.
The rate of returns you need to earn post-retirement is key to deciding the strategy you implement.
2,40,000. The inflation is at 8 percent, rate of return in investments made today till retirement to be 15 percent and rate of return on investments expected after retirement to be 6 percent. It would be wise if consider a higher amount rather than 2,40,000. Consider 25 percent to 30 percent more than the target amount. We have noticed the inflation declines between 1994-05 to 5.8 percent and again surges to 11.3 percent in the period 2005-10. Therefore looking at the altering inflation rate one should try to increase their investment by 5 percent.
Dasgupta, a 40 year old man earning 6 lakhs per year after taxes, wants to retire at the age of 65 years. He will need around 5 lakhs or more of annual income post retirement. He currently has 10 lakhs in investment & savings, and will receieve a company pension of 20,000 per month. Dasgupta would needs around 5 lakhs per year which comes to 40,000 rupees per month. If we subtract his company pension, he will need to fund 20,000 to manage his standard of living. We will assume that Dasgupta should be able to earn 6 percent annualized returns (after considering inflation), he will need atleast 41 lakhs or more (2.5 lakhs / 0.06). In India the current Inflation is running above the 10 percent mark but is has been around the 8 percent range over the past many years. So he needs 40 lakhs as of today's money 25 years from now. So to include inflation, we will multiply that number by 1.08, 25 times. Inflation adjusted Value is 40 lakhs will 273 lakhs or 2.7 crores.
So basically you need to check your current monthly expense so that you can analyze how much money you would require on daily basis after your retirement. Because if inflation strikes the cost of living gets double. And your current expenses will not remain constant. Retirement may allow you to cut back in some areas, like commuting, work clothes, and lunches out. But other costs will probably increase, such as health care, entertainment, and perhaps travel. You need to estimate your retirement expenses.
After this analysis you have an estimation of what needs will be covered by your pensions and what are the needs you got to start saving for. And then figure out how much to invest in order to save 2,40,000.
Take this amount and divide it by the return you think you'll earn on your investments. Consider 5 percent. When you divide the total amount by 5 percent, this will be your target amount.
The rate of returns you need to earn post-retirement is key to deciding the strategy you implement.
