Early retirement planning is crucial for effective financial preparation. However, while planning for golden years, various factors — including inflation rates, life expectancy, and increasing healthcare costs — must be considered to determine an appropriate retirement fund.

Many individuals find it challenging to commence their retirement planning at the onset of their careers. To illustrate how retirement planning can be approached at different life stages, we will examine three specific age groups: 30, 40, and 50 years, assuming a life expectancy of 80 years.

1. Retirement Planning for a 30-Year-Old

Assuming your current monthly expenses amount to Rs 30,000, with an average inflation rate of 5% per annum, your monthly expenses will rise to approximately Rs 1.33 lakh by the time you retire. Consequently, you will require nearly Rs 16 lakh to cover your annual expenses in the first year of retirement. If you account for a 5% inflation increase each year until you reach 80, the total retirement corpus needed would be around Rs 5.3 crore.

Also Read: Senior Citizen Fixed Deposits offering up to 9.1% – Check the latest interest rates

Retirement Planning Recommendations

At your age, it is advisable to have a higher allocation towards growth-oriented assets, such as equities, in your retirement strategy. A suitable approach would be to invest in an equity mutual fund through a Systematic Investment Plan (SIP), ideally in a diversified equity scheme.

By investing Rs 2,000 monthly and increasing this amount by 10% annually until you retire at 60, you will adequately fund your retirement. Over the 30-year period, your total investment will be approximately Rs 40 lakh, which, assuming a 15% return, will grow to about Rs 2.53 crore.

Upon retirement, you should cease the SIP and transition to a Systematic Withdrawal Plan (SWP) for 20 years, withdrawing Rs 1.33 lakh monthly with an annual increase of 10%. The accumulated amount of Rs 2.53 crore will provide the necessary monthly liquidity, with an expected return of 15%. Even at the age of 80, you can anticipate a remaining balance of over Rs 8 crore.

2. Retirement Planning at Age 40

Reaching your 40s marks a significant turning point in life. Unfortunately, many individuals do not recognize the necessity of retirement planning until they reach this milestone. Increased family obligations and the onset of health issues are two key factors that prompt individuals to consider their financial needs after retirement.

If we assume your current monthly expenses are Rs 40,000, factoring in inflation, you will need approximately Rs 1.1 lakh in the first month of retirement. With an anticipated annual expense increase of 5%, you will require around Rs 4.3 crore to sustain your expenses until the age of 80.

Recommended Strategy

Given the limited time-frame and a moderate risk tolerance, it is essential to invest more aggressively to ensure sufficient wealth accumulation. Investing in a Balanced Advantage Fund through a Systematic Investment Plan (SIP) is likely the most effective strategy for a 40-year-old planning for retirement. By contributing Rs 12,000 monthly and applying a 10% annual increase, you can achieve your financial goals with an expected return rate of 12%.

By the time you retire, your total investment of Rs 82.5 lakh could grow into a corpus of Rs 2.24 crore. You can then cease your SIP and transition to a Systematic Withdrawal Plan (SWP), allowing for monthly withdrawals of Rs 1.1 lakh, increasing by 10% each year. This accumulated corpus should adequately meet your financial needs until you reach 80 years of age.

3. Retirement Planning for Individuals Aged 50

Planning for retirement just a decade away can appear overwhelming, yet it is entirely feasible. At this stage, with a reduced capacity for risk and a preference for fixed-income assets, it is essential to increase your investment to achieve your target retirement fund. If your monthly expenses are approximately Rs 50,000, you will require around Rs 82,000 in the first month of retirement. Factoring in an annual inflation rate of 5%, your total financial requirement for the subsequent 20 years after retirement would amount to Rs. 3.2 crore.

What Steps Can You Take?

For a 50-year-old, Balanced Advantage Funds may present a viable option due to their flexible nature and capacity to adjust allocations between debt and equity. Given the limited investment horizon, you might need to contribute nearly Rs 50,000 each month. With an anticipated return of 12%, your total retirement corpus could reach approximately Rs. 1.64 crore. This sum could be placed in a bank fixed deposit yielding a 7% return, generating nearly Rs. 1 lakh in monthly interest.

Alternatively, you might consider a Systematic Withdrawal Plan (SWP) from your current fund with a 10% increase. The first option may not suffice to meet your needs after two years, while the latter could support your additional requirements until you reach 80, leaving you with a balance of Rs. 52 lakh.

Adhil Shetty, CEO of BankBazaar.com, advises, “Based on your expenses, risk tolerance, investment duration, and age, you might explore other investment vehicles such as PPF, NPS, or Senior Citizen Savings Schemes. However, it is crucial to recognize that conventional investment options may not always effectively address your retirement goals.”