There are 3 type of people in this world,
First one are those who do not care for their future, they believe in the fact that who know what may Happen Tomorrow? so they live there current life like Kings
Second one are extreme opposite and just focus on their future, they struggle with their life today and save everything for future…
There is also a Mix of this which is the Third category, who save for future but also live like kings or if not kings then at least try to live like a prince in today as Well
Now in which Category do you fall?
If you fall in the third category, then you are living correctly….
But wait!!! Problems do not finish here only…
Let's me tell you a Story
I was in class 10th and my teachers used to say that the person who do hard work in this time, enjoys the rest of the life, and the one who enjoy the life now, will have to struggle for whole life…
They used to say that decide which person you want to be, and then most of the class worked hard but let me tell you the Truth and bring you to the harsh reality… If this thing was to be exactly true then those Teachers would not be teaching in that school, they should be working in some great places and been some billionaires or at least millionaires
I realised the fact and started to work Smart!!! And now, I do not need to say How Fantastic my life is…
So what do you learn from the story?
You should do hard work but it should be in right Direction and should include some Smart Work
So, here comes your Retirement planning…
We all save something for our retirement but there are some common problems like:
- We are not focused
- We do not save enough
- We Feel it will be too early to start saving
- We do not know where to save
- And there are many other confusions…
1. The early you start investing, the less you need to Save for your Retirement
Let’s take an example:
You and Your Friend Sam wants to plan for retirement which will be at the age of 65, Sam starts saving at the age of 30 and invest $100 per month in a security which provides him a return of 12% per arum, then he will have $545,903 on his retirement, Now let’s say You start investing same $100 in same security which gives you the same 12% per arum return, but the Change here is that you start saving from the age of 20, Can you imagine what will be the Difference? You will have $1,727,685 and WOW, you became a Millionaire at you retirement…
How this Huge Difference came? This is known as the Power of Compounding and just by saving $12000 extra, you make a Difference of $1,181,782 it’s more than a Million Man!!!
2. How much you need for your Retirement?
This is a little easy but involves some calculations, and I would give you an Approximate Idea about how much you should plan to get on your Retirement…
A huge Factor here will be Age of Retirement and Expected Life Expectancy, so Please be sure about that, I would also recommend to have a Quick Talk with me if you have any doubts…
So, Let’s Get started…
First of all, you want to figure out your current expenses
Now, Reduce the Expenses from it which you will do after retirement and add some expenses in it which you believe will occur additionally like Medical Expenses due to old age
Now inflate these expenses according to inflation, for this you can easily use a formulae i.e.
Current expenses * (1+inflation) ^years to retirement
For example if my current expenses are $12000 per year and average inflation in my country is 5% and years to retirement are 30 then formulae will be
12000* (1+0.05) ^30 which will give you an answer of $51863
WOW, it’s more than 4 times right?
Now you need to assume what is your life expectancy, let’s say you assume to live 25 more years after retirement…
So you use the PMT Function in a Spreadsheet like Microsoft Excel and fill in all the values and this comes out to be $730,595
So you will need $730,595 for your Retirement but keep one thing in mind… We are not considering any Investment here and this is just an appropriation now the exact value
To find out the exact value, you should consult with a Certified Financial Planner.
3.Where do I invest my Money?
Well this is the Biggest thing… when you are young, and believe you can take some risk because if you lose some money still you have a lot of to build you corpus then you can go for Equity Investment,
If you are a Married Family Man and are in your 35-40’s then you can go for a mix of Equity and Debt Instruments
If you are in your 50’s and believe you cannot take any risk… then Only G-Sec and Debt Instruments are a viable option
Remember that Risk is Directly Relative to Return and high risk means high chances of return, You should always get appropriate advise from a CFP or a Portfolio Consultant or any appropriate person so that your Retirement do not get black…
4.What if my Retirement Corpus gets exhausted?
Do not worry, There are some alternatives possible which you can choose and live a healthy life…
For example, if you own a house, there is something called as Reverse Mortgage, in which you Mortgage our Home to bank…
Bank will allow you to live in that House and will also pay you Timely Money…
Once a specified period which you will decide before taking this facility, gets over, you can either pay the money back to bank or Bank will do an auction of the House and will give you the Money after Deduction its Money and Interest
So if you ever feel that you are going to life more than you expected, you always have some ways to life like King size… ha-ha
So, this brings us to the Importance of our Retirement Planning and Getting a Professional to help you out to Plan everything and Monitor it at least every 6 months to check and suggest Necessary Changes, and give you a confidence that you are on Right Path is very Important.
I believe if you are at your 20-30’s and reading this article, you will Start investing at least $50 to $100 so that you can live your Life and enjoy it the way you want