For many, retirement is several decades away, so it’s never too soon to start planning for your retirement. A retirement calculator is certainly one of the most useful of the many effective tools available to you for retirement planning.
Why Planning for Retirement Matters
Planning for retirement is just essentially making sure you save enough money to carry on your lifestyle as you end up retiring. Many people miscalculate their needs, and some start saving for retirement too late in life. It could lead to financial troubles later in life.
Here are a few reasons why retirement planning is a must:
- Longevity and Increased Life Expectancy: Thanks to the advancement of medicine, people are staying longer. This means that retirement funds will be needed to last much longer than when initially projected. Assuming you retire at 60 but live to age 85 or beyond, then, their savings should support you for 25 years or more.
- Inflation: Over time, inflation eats into your purchasing power. What would appear to be a significant amount of money now might not be enough to feed your needs and expenses later. You should, therefore, include inflation while planning to retire.
- Healthcare Expenses: As you age, the costs of healthcare tend to rise. Healthcare costs should, therefore form part of what you anticipate to spend during retirement and will play a huge role in your retirement budget.
- Changing Lifestyle: Do something different, see the world, get busy with hobbies, or just enjoy the golden years. Toward all these goals, you’ll need a comfortable nest egg to live without money stress.
The retirement calculator will break all this down into a smooth process by showing you how much money you’ll need to save in order to live comfortably for your expected lifestyle and expenses into the time horizon you will live during retirement.
How does a retirement calculator help?
An electronic calculator for retirement can be used as a tool to figure out how much money you need to save every month, how much you’ll need at retirement to live comfortably, and even if your current savings and investment strategy will be enough to cover all your objectives. Most often, such calculators:
- Years to retirement and at retirement: These years that you expect to retire tell you the amount of money you will need to put aside.
- Monthly expenditure upon retirement: The money you will spend on monthly basis after retirement, covering issues of shelter, food, health, and entertainment among others.
- Inflation: Average inflation for the years by which the value of your money decreases.
- Current savings and investments: This includes how much you have already saved, including pension plans, EPF or any other investments.
- Rate of return: The rate one expects to earn before and after retirement on his investments
- Retirement corpus goal: The money you want to have, in total, by the time of your retirement to enable you to lead the lifestyle you envision.
Then you know, with a retirement calculator, how much more you have to save and whether your financial plan is on track as per your needs. And if the answer is no with available savings not enough for retirement at the desired time, it is time to revisit your strategy by increasing your savings rate, changing the mix of investments, or revising your retirement goals.
Steps to Use a Retirement Calculator
Set Your Retirement Age: You should first decide how soon you want to retire. Some people may want an early retirement at 50, whereas others may want it close to the conventional retirement age of 60 or 65 years. The earlier you want to retire, the larger the corpus you would need to accumulate.
- Project Monthly Costs: Estimate what you might spend in retirement. Do you plan on carrying a mortgage or paying rent? Will you travel or pursue expensive hobbies? Be completely honest with yourself about what you will need when you retire.
- Existing Savings: Add any existing savings and investments you have available to access in retirement, such as EPF balance, pension plans, and other retirement savings, mutual funds.
- Accounting for Inflation: It reduces the money’s buying power over a time line. Most retirement calculators have a provision to include expected inflation also. In India, it is 5-6%. It helps know how much more would be required to meet future expenses.
- Set Your Desired Return on Investments: Depending on the kind of investment options you make, you may receive different returns. For example, for equities, you are generally bound to get higher returns compared with equities that have higher risks; lower returns but safer returns go to fixed deposits or government bonds.
- Calculate Your Results: After all the input, a rough estimate of what should be saved each month will show up on the calculator. Chances are you’ll get a number that makes you raise an eyebrow, but no worries-it’s just an estimate of what exactly needs to be tweaked to get on the right track.
Best Retirement Plans in India
Now that you know how much you need to save for retirement, the obvious question remains as to which retirement plan you should choose. Retirement plans in India can come in a thousand different shapes and sizes, each offering something, but not all alike. Let’s discuss some of the best retirement plans in India:
- National Pension Scheme (NPS): NPS is a government-recognized retirement scheme where you can contribute toward your retirement savings. The NPS offers equity and debt investment options.
- EPF: EPF is that savings scheme which compulsorily mandates a salaried person of India. A certain percentage of your salary is automatically deducted and credited in the fund. The employer lends his helping hand too by contributing it to the EPF account.
- Public Provident Fund (PPF): PPF is another saving instrument offered by the government with a long-term tenure, which is for 15 years. The amount deposited into the PPF account is eligible for tax deduction under Section 80C, and the interest accrued is tax-free.
- SBI Life – Retirement Benefit Plans: SBI Life offers a wide range of retirement plans, including SBI Life, Smart Pension Plan and SBI Life, Annuity Plan. Through steady premiums, you can create a retirement corpus and enjoy different types of annuity payouts upon retirement. This plan is ideal for individuals looking for income after retirement to sustain themselves.
- Mutual Funds: Invest in Equity Mutual Funds or Debt Mutual Funds: A decent wealth accumulation plan for retirement is to invest in Equity Mutual Funds or Debt Mutual Funds. Mutual funds may offer higher returns in the long-term as compared to any other fixed-income instruments.
- HDFC Life-Pension Plans: HDFC Life offers many retirement plans, including HDFC Life Click 2 Retire and HDFC Life Pension Super Plus. The plans are highly flexible in terms of premium payment and release a lump sum amount at the time of retirement along with the choice of annuity.
Conclusion
Planning for retirement is a long-term goal that takes much thought, early preparation, and disciplined execution. A retirement calculator is a powerful tool that helps understand the amount one needs to save and the best strategies to get to retirement.
Considering inflation, the cost of the expenses that you might incur, and the returns that you might get from an investment, the picture of your financial future becomes very clear.
