May 14 , 2013
We are more likely to reach a destination unmistakably if there is road map. If you wish to have comfortable retired life one of the things you need to do is to plan your finances. It might not guarantee that results are achieved 100% but you are more likely to take steps in the right direction with a plan.
Here is a quick guide on how you can put a financial plan for retirement on track:
How much money would you need to retire?
Use an online calculator to find the amount you need on retirement to live on for the rest of your life. For this you need to input 3 numbers.
# 1 is the estimated annual expense for yourself and your spouse. To give a direction you might require 75-90% of your current expenses after removing EMIs, children's education, life insurance premium etc.
#2 is the number of years you expect to live to. Better living conditions and availability of good medical care is increasing life expectancy of average Indians.
#3 is the rate of inflation; this cannot be ignored.
If you are familiar with MS Excel you can find the amount using FV formula. The number can turn out to be quite intimidating but the idea is to get motivated to take steps in the right direction.
Assess where you stand now
Get the value of all your investments (those which are not marked out for goals coming before retirement) including PF, gratuity expected. The difference of this number and the previous number is what you need to aim to create by the time you retire.
Make changes, if necessary
Once you know how much your retirement fund is falling short of, check how much money you would accumulate at your current savings rate. Factor your investment return rate in this calculation.
If it turns out that at the present rate you will not reach your target amount there are two things that can be done-
1. Boost your savings rate. This might mean squeezing your pockets and voluntarily cutting down on certain avoidable expenses. If this looks unachievable you'd be left with another, perhaps more unpleasant alternative…
2. Postpone retirement or at least find part employment