Planning retirement, starting from wherever you are
The four questions that turn a vague worry into an actual number you can work towards.
Retirement planning gets postponed because it feels enormous and abstract. It becomes manageable once it is broken into four questions, each of which has a concrete answer.
Why it will not take care of itself
- Income stops, expenses do not. Most costs continue and some, particularly medical, rise.
- Inflation does the damage quietly. What a month costs today will cost substantially more in twenty years. A sum that sounds large now may not be.
- Medical costs concentrate late in life, exactly when earning capacity has gone.
- Independence has a value of its own. Most people would rather not have the conversation about money with their children.
The four questions
What annual expense am I funding? Start from what a year costs you now, strip out things that will stop, add things that will start, then account for inflation between now and then.
How long does it need to last? Life expectancy keeps rising. Planning for a longer retirement than you expect is the safer error.
How much can I put aside each month? Be honest rather than aspirational. A smaller amount that continues beats a larger one that stops.
How many years do I have? This matters more than any other input, because of what compounding does with time.
Starting ten years earlier does more for the final figure than almost any decision you can make about where to invest.
Where the money goes
A retirement corpus is usually built across several instruments rather than one. Provident fund contributions from employment, the National Pension System, equity mutual funds through SIPs for the long growth, and deposits or debt funds as the date approaches and protecting what you have matters more than growing it.
The usual shape is more equity when the horizon is long and progressively less as it shortens, because a market fall five years before you need the money is a very different problem from one twenty-five years before.
Worth knowing
Several retirement instruments carry tax benefits under the old regime, and these differ under the new one. Which regime suits you depends on your overall position, so take advice on that specific question.
See where you stand
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