Planning for retirement is an essential part of financial planning that you cannot ignore. Having a retirement corpus that can take care of your post-retirement financial needs is essential.
A retirement corpus is the amount of money you require to maintain to support your post-retirement expenses. It is essential to plan for retirement early and calculate your retirement corpus to ensure that you have adequate funds to meet your post-retirement financial needs. A pension scheme in India is one of the most popular ways to create a retirement corpus.
In this blog, we will delve into calculating retirement corpus with a pension scheme in India and the steps you must follow to achieve your financial goals. However, let us first understand what a retirement corpus is.
What is a Retirement Corpus?
A retirement corpus is a sum you must have saved to support your expenses after retirement. It is a nest egg you build up throughout your working life to provide financial security during retirement.
The retirement corpus should be sufficient to cover your living expenses, healthcare costs, and other expenses that you may have during your retirement years.
Now, let us examine how you can calculate your retirement corpus with a pension scheme in India.
Steps to Calculate Your Retirement Corpus with a Pension Scheme in India
Step 1: Determine Your Retirement Age
The first step is determining the age at which you want to retire. The retirement age can vary based on personal preferences and work requirements. However, the typical retirement age in India is around 60 years. Once you have determined your retirement age, you can calculate the years left until your retirement.
Step 2: Estimate Your Retirement Expenses
After determining your retirement age, you need to estimate your retirement expenses. They include basic living expenses, healthcare expenses, travel, and any other expenses you may have. Considering the inflation rate while calculating your retirement expenses would be best. It is essential to clearly understand your post-retirement costs to plan your retirement corpus efficiently.
Step 3: Consider Your Current Savings
The next step is to consider your current savings. It includes all your savings and investments that you have made till now. The savings may include a provident fund, Public Provident Fund (PPF), recurring deposit accounts (RD accounts), fixed deposits, mutual funds, stocks, and other investments. You can use this amount as a base and calculate how much additional money you need to save to achieve your desired retirement corpus.
Step 4: Calculate Your Retirement Corpus
In this step, you calculate your retirement corpus. A pension scheme in India can help you create a retirement corpus. You can choose from various pension schemes available in India, like the National Pension System (NPS), Employee Provident Fund (EPF), Public Provident Fund (PPF), and others.
Step 5: Adjust for Inflation
After calculating your retirement corpus, adjusting it for inflation is next. The inflation rate is when the cost of living increases over time. Assume an annual inflation rate of 6-7% and adjust your retirement corpus accordingly. Adjusting for inflation will ensure that your retirement corpus remains adequate to cover your expenses throughout your retirement years.
Step 6: Review and Adjust Periodically
Review and adjust your retirement corpus periodically. You can change your retirement plan based on market conditions, economic trends, and financial situations. Examining your retirement corpus at least once a year to factor in any changes in your retirement plans or income is essential.
Periodic reviews will also help you track the performance of your pension scheme and make any necessary changes.
Apart from a pension, consider opening a recurring deposit account if you want a short-term savings option. Banks and financial institutions offer an RD account for depositors to make regular deposits of a fixed amount for a fixed interval, usually ranging from 6 months to 10 years. The interest rate on a recurring deposit account is generally higher than that of a regular savings account and compounded quarterly or annually.
RD accounts offer a guaranteed return on your investment. At the end of the term, the depositor receives the principal amount and interest earned on the account.
Planning for retirement is essential for financial planning, and a pension scheme in India can help you create a retirement corpus. You can use a pension calculator tool or an Excel spreadsheet to calculate.
Reviewing your retirement plan regularly and making necessary adjustments to achieve your financial goals is essential. Adjusting for inflation and periodic reviews are also crucial steps in retirement planning. Following these steps, you can plan a comfortable retirement with a pension scheme in India.
So, what are you waiting for? Plan for your retirement today!