New Delhi. The biggest mistake we make regarding retirement is that we keep postponing it considering it a distant topic. In the hustle and bustle of rent, EMI, children’s education and career, retirement never seems ‘urgent’. But the reality is that the average life expectancy in India has crossed 70 years, which means many people spend 20–30 years in retirement without regular income. Small decisions taken today decide whether the future will be lived with freedom or with worry.
Step 1: Mathematics of time, why the age of 30 is most important
The most powerful weapon in retirement planning is ‘time’. Even small savings started at the age of 30 can compound over decades and create a huge fund. A delay of 5 years can increase the monthly investment by 30-40 percent, while a delay of 10 years almost triples the investment. That means early start, less burden and more peace.
Step 2: Decide first – what does your freedom look like
Retirement is different for every person. Some want a simple life, some a comfortable life in the city, some want travel and new experiences. Where will you live, how will your expenses be, city or town – all these things decide your expenses. As of today, basic life requires Rs 40-50 thousand/month, comfortable life requires Rs 75 thousand- Rs 1 lakh and premium life requires Rs 1.5 lakh or more. Whereas these figures increase rapidly with inflation.
Step 3: Effect of inflation – Why Rs 50 thousand will not be enough
Inflation works silently. Today’s groceries, electricity, domestic help and transport will be more expensive tomorrow. The biggest risk is healthcare, where expenses may increase by 8-10 percent annually. If inflation is ignored, there may be a shortfall in retirement despite years of savings.
Step 4: How to decide the ‘magic number’-total retirement corpus
Once the monthly expenses are estimated, decide the total corpus. Retirement can last 20-30 years, so include daily expenses, emergency needs and health expenses. A safe withdrawal rate of 3-4 per cent per annum reduces the risk of running out of money in the long run. Excessive withdrawal does not bring peace, it increases anxiety.
Step 5: Reverse Engineering- What should be the monthly SIP?
A big goal sounds scary, but break it into monthly SIPs. Even a small SIP started at the age of 30 can create a big fund through compounding. If you start late, you have to increase the SIP significantly to achieve the same goal. For many mid-career professionals, investing 20-30 percent of income in a combination of EPF, NPS and mutual fund SIP is a practical path.
Step 6: 20 percent rule – simple and effective formula
Income based rules keep planning easy. If income increases, investment will automatically increase. There is no need for repeated calculations. Regular investment of 20% on monthly income of Rs 1 lakh and periodic income growth can create a multi-crore corpus over a long career.
Step 7: Why equity is important to beat inflation
Equity offers the greatest opportunities at a young age. The market goes through ups and downs, but also recovers with time. Too safe an investment gives slow growth in the beginning, which leads to increased risk later. History shows that equities have given 10-12% returns in the long run, which is necessary to beat inflation.
Step 8: SIP Step-up – Small Increase, Big Impact
If salary increases, increase SIP also. Big jumps are not necessary – small, regular increases are enough. Give part of the bonus or increment for the future, not just for today. In 25- 30 years, there can be a difference of several crores between flat SIP and step-up SIP.
Step 9: Golden Rule- No loan for retirement
Goals like home, children’s education are important, but postponing retirement is dangerous. No loan available for retirement. Even in difficult times, small regular savings are better than waiting for the perfect time. Life changes – income, responsibilities too; Therefore, review the plan from time to time and make improvements quickly. Stress-free retirement is not the result of any magic, but the result of right habits started on time. Small SIPs today, right asset allocation and discipline – determine the freedom of tomorrow.
