Right from the time we start to earn income, we would have heard about saving for retirement. But more than 70% of us would not have been in a situation to save much. It is quite normal to end up spending major part of the income towards expenses. When we are young our family will be in growing stage. Once we are settled with job, the stage is about getting married then within 2-3 years kids and so on. At this point, most of us will be still coping with how to manage expenses with available income. However, it is always good to have a retirement goal in mind. Though there are lots of expenses, make decisions of when to start saving, how to save and how much should be the bank balances and investments during retirement age.
Retirement Be Like!
Everyone plans for retirement but only few will actually save up to what they expected to have. Thus while you are planning for retirement –plan it in such a way that it will be luxurious. So at least you will end up with pretty decent savings by the end of retirement. It is up to each of us to decide how happy or sad our retirement life should be. Also while calculating how much to save make sure you are considering inflation, economic changes, personal situation and also achievable returns.
How much to Save for Retirement?
This depends on how you want to live your retirement life and where you live. The easy way to save for your retirement is by talking the below steps:
- Credit Card Payments:
If you have plans of saving for retirement, first learn how to make timely credit cards payments. If this is done correctly, the rest will be easier. Being able to pay credit card bill fully without any default is an easy way to tune you to save money and make payments on time.
- Automate Savings:
Create automatic instructions or standing instructions in your bank account to move your savings to different account, schemes and programmes that will fetch decent return on investment. One of the other commonly available facilities of automated savings is the Provident fund contribution. The contribution from both the employee and employer is automated and this will be a lump sum amount during retirement ages.
Automate your investments to maximize your retirement savings.
- Learn to Live with Available Means:
Knowing how much you earn and knowing how much is your expenses are will help you in tackling and reducing expenses. Move a good part from your income as savings right at the beginning of every month. Consider the balance as your actual income and plan expenses accordingly. This will help in contributing to saving irrespective of how expenses might vary.
- Keep Debts to the Minimal:
Getting into debts is quite common these days; however it is important to know how much you can afford. Don’t get into debts for which you do not have repayment capacity. Whether it is buying a home or car or even admission of kids to the school, know what your affordability is and accordingly take responsibilities and debts.
Cut down your useless spendings to save more money each month.
- Invest in Insurances:
Invest in health and car insurance as this will not eat up your savings during emergencies and invest in life insurance to assist you and your family during retirement and post. Other options are pension benefits, real estate investments, self-employment plans, investing in shares and bonds. Investing is different from trading, if you wish to earn returns without losing your principal, then opt investment over trading.
Though it sounds a bit difficult, it is actually easier to save 10-15% of your income during the early stages of earning. At the age of 20s, try to save to the maximum extent. Firstly, when there is talk about retirement, the question in everyone’s mind is how long will be the retirement period, based on this we will have to decide how much should be saved for retirement. The ideal retirement period can be 10-15 years.
Planning It
It is easier to save for retirement when you are young, the older you turn income might go up but simultaneously expenses also will. The more you earn, the more you will start spending. As the amount you are trying to save is for personal requirements, make sure you are earning maximum returns on the investment plus enjoying tax benefits.
Your retirement savings should be proportional to your annual salary in the below manner:
By the age of 35: Have twice your annual salary saved
By the age of 40: Have three times your annual salary saved
By the age of 45: Have four times your annual salary saved
By the age of 50: Have five times your annual salary saved
By the age of 55: Have six times your annual salary saved
By the age of 60: Have seven times your annual salary saved
By the age of 65: Have eight times your annual salary saved
Though this is a best plan, it is not always possible to meet this formula expectations. But try to strive to achieve this throughout your life to enjoy your retirement life to the best.
Doing It
Let’s take an example of saving for retirement:
Required Income (Current Rupees) Rs. 1800000.00
Required Income (Future Rupees) Rs. 1800000.00
Number of Years until Retiring 15.00
Number of Years after Retiring 25.00
Annual Inflation (on Required Income) 0.00%
Annual Yield on Balance 7.50%
You will need Rs. Rs. 21, 56,9340
| Year | Beg. Bal. | Withdraw | Interest | End Bal. |
| 1 | 21,569,340 | 1,800,000 | 1,482,701 | 21,252,041 |
| 2 | 21,252,041 | 1,800,000 | 1,458,903 | 20,910,944 |
| 3 | 20,910,944 | 1,800,000 | 1,433,321 | 20,544,265 |
| 4 | 20,544,265 | 1,800,000 | 1,405,820 | 20,150,084 |
| 5 | 20,150,084 | 1,800,000 | 1,376,257 | 19,726,341 |
| 6 | 19,726,341 | 1,800,000 | 1,344,476 | 19,270,816 |
| 7 | 19,270,816 | 1,800,000 | 1,310,311 | 18,781,127 |
| 8 | 18,781,127 | 1,800,000 | 1,273,585 | 18,254,712 |
| 9 | 18,254,712 | 1,800,000 | 1,234,103 | 17,688,815 |
| 10 | 17,688,815 | 1,800,000 | 1,191,661 | 17,080,477 |
| 11 | 17,080,477 | 1,800,000 | 1,146,036 | 16,426,513 |
| 12 | 16,426,513 | 1,800,000 | 1,096,988 | 15,723,501 |
| 13 | 15,723,501 | 1,800,000 | 1,044,263 | 14,967,763 |
| 14 | 14,967,763 | 1,800,000 | 987,582 | 14,155,346 |
| 15 | 14,155,346 | 1,800,000 | 926,651 | 13,281,997 |
| 16 | 13,281,997 | 1,800,000 | 861,150 | 12,343,147 |
| 17 | 12,343,147 | 1,800,000 | 790,736 | 11,333,882 |
| 18 | 11,333,882 | 1,800,000 | 715,041 | 10,248,923 |
| 19 | 10,248,923 | 1,800,000 | 633,669 | 9,082,593 |
| 20 | 9,082,593 | 1,800,000 | 546,194 | 7,828,787 |
| 21 | 7,828,787 | 1,800,000 | 452,159 | 6,480,946 |
| 22 | 6,480,946 | 1,800,000 | 351,071 | 5,032,018 |
| 23 | 5,032,018 | 1,800,000 | 242,401 | 3,474,419 |
| 24 | 3,474,419 | 1,800,000 | 125,581 | 1,800,000 |
| 25 | 1,800,000 | 1,800,000 | 0 | 0 |
Here are the most common expenses that everyone will have to face during their retirement life. You have enough savings to meet these requirements, then it can be considered that your retirement planning was successful.
- Housing
Age 55-64: Rs. 10,80,000 (average Rs. 9000/- per month)
Age 65-74: Rs. 9,60,000 (average Rs. 8000/- per month)
- Transportation
Age 55-64: Rs. 5,40,000 (average Rs. 4500/- per month)
Age 65-74: Rs. 2,40,000 (average Rs. 4000/- per month)
- Food
Age 55-64: Rs. 4,08,000 (average Rs. 3400/- per month)
Age 65-74: Rs. 1,86,000 (average Rs. 3100/- per month)
- Pensions & Social Security
Age 55-64: Rs. 1,92,000 (average Rs. 3200/- per month)
Age 65-74: Rs. 78,000 (average Rs. 1300/- per month)
Households with the reference person age 65 years –74 years and 75 years and older are mostly retired members who are collecting pension and other benefits.
- Health Care
Age 55-64: Rs. 2,88,000 (average Rs. 2400/- per month)
Age 65-74: Rs. 3,60,000 (average Rs. 3000/- per month)
- Entertainment
Age 55-64: Rs. 1,80,000 (average Rs. 1500/- per month)
Age 65-74: Rs. 1,68,000 (average Rs. 1400/- per month)
- Other
Age 55-64: Rs. 3,60,000 (average Rs. 3000/- per month)
Age 65-74: Rs. 3,12,000 (average Rs. 2600/- per month)
By saving you will be able to decide how good will be your retirement. Though it is easy to analyze and put it into words, savings from income requires a lot of determination. Each one who is planning to save for retirement should have a retirement goal. This goal will motivate to save as much as possible. Some have retirement goal as world tour and so on. The other aspect is learning to live with modesty. Irrespective how good the retirement savings are, if you end up being lavish in life, all savings earned for the retirement will be washed away within couple of years.
In India, the other factor is saving for children; this is also another reason why many does not get enough to save for their retirement. The advice to such parents is, save for retirement instead of saving for children. In case, if there are anything left from the retirement amount let your children use it. Moreover, they will be grown up enough to earn for themselves when you are enjoying your retirement. The biggest gift a parent can give to his son or daughter is managing retirement wisely, thus there is less burden on them. Even if you do not give them bank balances and properties, your children will still live happily if they notice you are enjoying your retirement life without their support.
Retirement is actually the time you are getting paid for all your hard work. Enjoy it to the maximum with less tension about children. Happiness is the reward for best retirement planning.
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