The thought of saving money for your retirement may have struck you several times. However, you have been deterred from your plans on several occasions. Experts continue to emphasize the importance of investing money in your retirement early on. It is essential to support the lifestyle that you wish to live in the years to come.
When planning your retirement corpus, one of the most difficult questions to approach is how much money should you save? What is the total fund amount that it would take for you to support a comfortable retirement?
Well, there is no one-fitting answer for the total corpus approach that you should use when saving for your retirement. It essentially means that it differs based on the lifestyle that would like to live in your later years. Consider the several goals that you aim to achieve during the period. These could include buying a vacation home, going on a foreign trip, funding the educational fees of your grand-kids or just about anything. Closely consider all the possible goals that come to your mind and move towards building a strong savings goal.
Rule of thumb to follow
A general rule of thumb that you can follow is having a ‘replacement income’. This essentially means having 80 percent of the yearly salary that you have earned while working. If you make 10 lakhs a year when employed, you should have at least 8 lakhs a year when retired. Once you have this amount at hand, you can then multiply it by the average life expectancy after you retire. This can be a minimum amount and you can add in the extra requirement based on your goals.
Aspects to consider when saving for retirement
There are two aspects to consider when placing a mark on the amount to save during retirement. These include:
Retirement and inflation – It is important to keep inflation in mind when deciding your retirement corpus. Over time, the rate of goods and services are bound to increase. This will decrease the stretch- ability of your rupee. Unless you invest in a special kind of retirement fund, your retirement savings remain flat. Thus, closely consider this aspect when deciding on your plan.
Use a mix of investment options – Your retirement plan must include different investment options such as senior citizen savings accounts, fixed deposits, mutual funds and more. Keeping a balance will ensure that you get the best returns. Senior citizen savings accounts are specially formulated with higher interest rates. On the other hand, options such as mutual funds can earn you high returns with a higher degree of risk. You must make an informed choice for better retirement planning.