Get clarity on your retirement goals
What is meant by clarity on retirement goals? It is about estimating your retirement corpus and also building insurance and liquidity into it. Let us look at the first step. A young executive starts saving at the age of 30 and plans to retire at the age of 55. Let us go about estimating the retirement corpus assuming that he earns Rs100,000 per month and his monthly expenses are Rs60,000 per month currently. He can save Rs10,000 per month towards his retirement corpus. But this monthly expenditure will have to be inflated to a future date. Here is how!
|Particulars (Starting)||Amount||Particulars (Ending)||Amount|
|Current monthly expense||Rs60,000||Years to retirement||25 years|
|Expected Annual inflation||5%||Monthly SIP||Rs10,000|
|Monthly expense at 55||Rs205,000||SIP in which instrument||Equity Funds|
|Post Retirement in||Debt Funds||CAGR Returns||14%|
|Yield on Debt funds||8.50%||Corpus at age of 55||Rs2.72 cr|
|Corpus Required||Rs2.89 cr||Corpus shortfall||Rs17 lakhs|
A combination of starting early and using the equity route allows the person to get quite close to his target corpus of Rs2.89 cr. However, he still falls short of the target. What is the way out?
Structure your retirement payouts better
The key here is to structure the retirement payouts better. Instead of putting the entire money in a debt fund and earning just the returns, a better way would be to structure it as a systematic withdrawal (SWP) plan over a longer period. Since he plans to retire at the age of 55, assume that he pays himself through SWP for 25 years till the age of 80. How will it work out?
|Year||Corpus in Debt Fund||Annual Interest income 8.5%||Annual Withdrawal||Closing Balance|
|Year 1||272,00,000||23,12,000||25,31,000 per year||269,81,000|
|Year 5||262,05,846||22,27,497||25,31,000 per year||259,02,343|
|Year 9||248,28,090||21,10,388||25,31,000 per year||244,07,478|
|Year 13||229,18,714||19,48,091||25,31,000 per year||223,35,805|
|Year 17||202,72,589||17,23,170||25,31,000 per year||194,64,759|
|Year 21||166,05,434||14,11,462||25,31,000 per year||154,85,896|
|Year 25||115,23,275||9,79,478||25,31,000 per year||99,71,753|
In the above table, we have just shown the numbers for every fourth year to avoid clutter. The bottom-line is that the retirement corpus of Rs2.72 cr can be invested in a debt fund yielding 8.50% and gradually withdrawn through a SWP. You end up getting Rs2.11 lakhs each month (25.31 lakhs / 12) from your retirement date for 25 years. It is also tax efficient. We have also built a safety net into this SWP. At the age of 80, he would still be left with a corpus of nearly Rs.1 crore and that should act as a good buffer for him at that age.
Leverage the power of online goal planners for the purpose
The big question is how can the investor go about this kind of detailed planning? Technology has ensured that most of these planners are available to you at the push of a button. These online planners can be used to crystallize goals, plan for the same and also monitor and rebalance where necessary. In a nutshell, if you want to really retire (rewire) early then start early, plan smartly, draw down systematically and monitor everything in a real-time manner; anytime, anywhere!