Retirement Calculator

Retirement planning is not just about taking care of the necessities but also enjoying the post-retirement years. A retirement corpus should be large enough to take care of the health needs as well as the daily expenses after retirement. Starting early provides a larger number of years for saving and the growth of the money. If one starts saving for retirement in the 20s, he/she will be able to build a larger corpus even with relatively lower return on investment.

When one is young, the propensity to take risk is higher. The responsibilities are limited at a young age. As one grows up, family members increase and so do the daily expenses. The tolerance for risk decreases as responsibilities increase. There are fixed expenses like EMIs and other responsibilities. One can invest in market-linked products that may get greater retirement benefits.

When you remain invested for a long time, the investment gains from the power of compounding. The power of compounding kicks into action when the initial interest earned on an investment becomes a part of the principal amount and starts earning interest. If you start early, you can witness exponential growth due to the power of compounding. The power of compounding becomes effective only if one invests for the long term. Let us understand compounding with an example. For the sake of simplicity, let us consider a lump sum investment of Rs 5 lakh. Ramesh invested Rs 5 lakh at the age of 25 and got around Rs 34 lakh at the age of 50 with an annual rate of return of 8%. His friend Mohan invested the same amount just five years after Ramesh and earned 9% per annum on the investment. Even with a higher rate of return, Mohan’s investment was just worth Rs 28 lakhs at the age of 50. The power of compounding ensures that the investment grows rapidly as the duration increases.

If you have invested in a market-linked product, regular fluctuations can have an impact on the value of the investment. However, long-term investment leads to rupee cost averaging and nullifies the impact of daily fluctuations. When you invest small amounts regularly for retirement planning, the smaller contributions at different market levels averages the price of investment over the long run. With rupee cost averaging, the retirement benefits are protected from the vagaries of the market.

Starting early instils a sense of discipline towards savings and investments from an early age. Retirement planning requires systematic investments and control over expenditure. Starting at a young age ensures a financially disciplined life and a secure future.

The purpose of retirement planning is to create a corpus for a stress-free post-retirement life, but it also offers a number of tax benefits. The premium paid for a pension plan is eligible for tax deduction of up to Rs 1.5 lakh in a year under Section 80C of the Income Tax Act, 1961, subject to the provisions stated therein. The maturity benefits too are tax-free either completely or partially depending on the type of the plan.

It is crucial to decide the retirement savings corpus while planning for retirement. Retirement savings is the amount of money generated from different investments and savings, which is earmarked for the exclusive use after retirement. The size of retirement savings will increase in consonance with the number of years one plans to spend as a retiree. If you plan to retire early, you need to have a large retirement corpus. There are a few mistakes one should avoid while deciding the retirement corpus or planning for retirement. 

Inflation is a factor that silently erodes the value of your money. Many people make the mistake of not factoring in the inflation rate while deciding the monthly amount needed to take care of expenses after retirement. Inflation can substantially increase the cost of items in a few years. An average inflation rate of 6% per annum can push your monthly expenses to Rs 1.6 lakh from Rs 50,000 in 20 years. It essentially means that the products and services that you can buy for Rs 50,000 today will require Rs 1.6 lakh after 20 years due to inflation. A retirement calculator factors in inflation while making financial projections.

There are a number of life goals besides the retirement goals. One of the most common mistakes is to mix other life goals like children’s marriage and education with retirement goals. Plan separately for other life goals and keep the retirement corpus exclusively for post-retirement life. The retirement corpus should remain untouched until retirement. Mixing different life goals can lead to miscalculation and affect your retirement benefits.

One of the biggest mistakes made by a large number of people is to start saving for retirement late in life. It does not matter if you want to retire early or retire late, one should start saving and investing for retirement as early as possible. Starting early ensures that you have adequate time to build a retirement corpus large enough to take care of all your needs. The power of compounding also takes over when you invest for the long term and the investment grows exponentially in the later years.