6 Points for retirement planning
Normally you should take the guidance of an expert with regards to your retirement planning, typically a CFP. In this article, I will take you stepbystep and design a dummy plan for retirement. You need to know what all points to look out for and what should be considered before you can retire in peace. There are multiple ways in which you can plan for your later years, this being one of them. I would be including the traditional investment tools like Mutual funds (How to invest in them?) and PPFs, if you have any other option in mind or wish to share a better method then please include your valuable suggestions in the comments section below.
You first need clear answers to the below questions
 What is the final corpus that you would need by your retirement
 When do you plan to retire
 What would be the average or tentative inflation rate in the coming years
 What should be your savings per month
 Where should you invest your money to obtain the desired results
The list of questions is endless, and you must know the answers to all of them.
The best way to understand the concept would be to go by an example.
Let’s assume we have a person, Vinod who is 32 years old and married, has two kids, both being below the age of 6 years. His monthly income is 40,000INR and he wishes to retire by the age of 60.

Find out your current expenses
Make a list of your monthly expenses. Just take a pen and paper and write them down. Try to include as much as possible so that you get an accurate figure. The monthly expenses may include School fees of your children, groceries, rent, petrol, vehicle maintenance etc.
Now also, note how much you are currently saving each year.
Vinod’s monthly expenses:
Groceries: 11,000 INR
Rent: 10,000 INR
Medicines: 1,000 INR
Family outings: 3,000 INR
Total monthly expenses: 25,000 INR
The per year living expenses would come out to be 25,000 INR times 12 = 3,00,000 INR.
This is still not an accurate sum because we haven’t included the vacations or surprise expenses !!
Let’s take a rough figure of about 50,000 INR to account for those. So that brings out yearly expense to 3,50,000 INR.

Understanding Inflation
This is one of the most important factors to be considered. Inflation can singlehandedly eat up a huge chunk of your retirement corpus is not planned properly. Taking into consideration past years inflation (19902008), which comes out to be 7.5% , one can safely assume that in the coming years it would hover around 6.5% approximately. Here I am assuming a prosperous economic growth. For our further calculations, I have assumed an inflation rate of 6.5%. IF you wish you can choose a different rate and calculate accordingly.

How to maintain the same standard of living
It is quite obvious that you wouldn’t wish to downgrade your quality of living just because you have retired. In order to maintain the same standard of living post your retirement, you will have to come up with a monetary figure which you would require each month so that you can sustain that living. That value will have its own variables
 Inflation over the years
 Current Yearly Expenses
 Years left for your retirement
There is a general formula you can use to find out your retirement yearly expenses.
Retirement Yearly Expenses (RYE) = Current yearly expenses X (1+inflation) ^ (number of years left)
Vinod has 3,50,000 INR as his yearly expenses and he has about 28 years to retire, so if we input these details in the formula we can obtain his RYE.
RYE = 3,50,000 X (1+.065) ^ 28
= 20,40,000 INR (that’s 20.4 lakhs approximately)
Note: If you are an early investor, you will not have to compromise on your quality of living post retirement. Sailors do not have any sort of pension after they retire, so no matter how trivial it may sound now but one much start planning for retirement from the first month on the job.

Coming up with a corpus for your yester years
There can be various possible options in which you would like to receive your income. Either a monthly sum for your whole life or a lump sum amount.
Tip: Preserving the capital of your corpus in the name of your children is a wise thing to do.
A sufficient amount is needed which if you put in a bank or elsewhere where your returns are guaranteed, then you should be receiving a fixed income equivalent to your projected monthly expenses post retirement.
For example, if you get a yearly return of 7%, then the amount you need is X.
Desired corpus: Monthly Expense/ Interest Expected
In Vinod’s case, the approximate yearly expense was INR 20,40,000 and the expected return was assumed to be 7%, therefore, the amount required would be
20,40,000/0.07 = 2,91,00,000 (2.91 Cr)
Tip: You can avail the annuity plan as well. Wherein you would be receiving the income for a fixed number of years. Formula to be used
PVA = A * [ {(1+r)^n 1} / { r * (1+r)^n } ]
Where:
PVA= Present value of Annuity (Amount you need to have when you retire)
R = Rate of interest (expected)
N= Number of years you wish to avail the yearly income

How much to save monthly
How much you should be saving on a monthly basis would largely depend on the two factors;
 How much can you effortlessly afford to invest on a monthly basis?
 What are your expected returns in the long term ?
You have no control on the rate of returns, the only thing in your control is the amount which you would be investing every month. You should first decide how much you can invest each month and then plan accordingly. The process to follow is;
 Find out how much you can save monthly
 Find the rate of return you need to generate
 Find out the avenues for your investment, that would generate those returns
So assuming Vinod has a saving of 15,000 INR currently and he can easily afford to invest a sum of 10,000 INR per month over the years, the returns which he needs to generate per year CAGR for 28 years to generate his corpus of 2,91,00,000 INR comes out to be 12.25%.
This gives you a rough idea of the minimum rate of return which you need to generate year over year to achieve your goal.

Where to invest ?
The rate of return decides your risk capacity, if he number is on the higher side that means you would need to make riskier investments in order to achieve your target value. Similarly, if the number is on the conservative side, you can choose safer investment options. A return rate of 12% can be considered to be a bit on the risky side, so your investments would need a higher equity exposure. The value of the rate of return also depends on the timeframe you have in mind for generating the corpus.
Note: Higher returns would mean exposure to higher risks, and a longer tenure would reduce the risk.
Returns expected:
Above 15%: Stocks, Mutual funds
10%15%: Mutual funds, Balanced funds
8%10%: Mix of balanced funds and Debt funds
Less than 10%: PPFs, FDs etc
In our example, Vinod should invest in equity mutual funds through an SIP model.
Tip: In order to further reduce the risk of a loss, one should divide the SIP amount into three parts and invest separately in three different funds (high ranking and good performance record to be checked before investing).
Vinod can invest 25% in PPF, 75% in 3 different mutual funds through SIP.
OR
510% in Direct Equity, PPF and balanced funds
There are multiple permutations and combinations available once you know your goal.
You just made your very own investment plan, now all you have to do is follow it strictly. If you need a more detailed planning, which I strongly suggest you should be visiting your financial planner at the earliest.
Happy Investing !!