The question is a simple one, so the answer should be simple too.
If you want to know how much you need to retire, there are a few simple things you should be aware of and you should realistically think about.

 

1. Inflation
   
   You experience this on a day to day basis, and more so in the last few years.
   A Rs. 100 note had a lot more value 5 years ago than it does today. This is because goods and services are much more expensive. This is the effect of Inflation.
   
   Inflation is of different types. You have household inflation (which historically has been 7% per year over 10 year periods) and other inflation such as inflation in healthcare, education, travel and other such discretionary expenses. These tend to grow at a higher rate of inflation when looked at on a per annum basis. This is because they might not increase per year, but when they do increase every few years, the jump is a big one. The rate for this comes to typically around 10% per annum over 10 year periods.
   
   We might be in a period of high inflation right now, but this will last only until supply bottlenecks open up and prices of goods and services cool down. Historically, inflation moves in a cycle. Low inflation is followed by medium inflation, which is followed by high inflation which then reverses to become medium, and then back to low.
   
   So remember, discretionary expense inflation is higher than household inflation, on a per annum average basis. Also note, a high assumed inflation figure will greatly blow up the retirement corpus you need – even a 0.50% change in inflation will have a significant impact on your retirement corpus calculation. So be as realistic as you can.
    
2. Your life span.
   
   From a financial planner’s point of view, this is a question that is always, for obvious reasons, delicately asked.
   
   Healthcare advances mean that one’s life expectancy is much higher today than it was a couple of generations ago. Our great-grandparents did not have access to the kind of healthcare that we have access to today. We however do have this access. It is more and more common to see people living until the age of 85. Look at your own family and at the families of your friends, you will see that this is more common than you might think.
   
   Also, the need to be very conservative when assessing life expectancy is high.
   The last thing a financial planner wants is to under-estimate life expectancy, because this would mean that your client will outlive his or her net worth, and this leads to financial dependency and / or a change in lifestyle at an advanced age.
   
   So when you are assessing your own life expectancy, aim high. 80 is not enough, go for 85. Better safe than sorry.
    
3. The level of lifestyle you want to maintain
   
   Think about this one carefully. There are a few pointers here that will help you assess this. You are currently working, most likely. Which means that from morning until late evening, you are at the office. Not spending money during these hours, but earning it.
   
   When you retire, this will change. You will have a lot more free time, quality time, to spend with your loved ones and by yourself on your hobbies. You might decide to paint, or play golf, or learn a musical instrument or take up social work actively.
   You might also want to travel, as we all do. All of these things will lead to cash outflows.
   
   Alternatively, you might dedicate yourself to social work, and decide to lead a more simple, easy life. In this case, expenses in relative terms might not increase, they might decrease instead.
   
   Now, your current lifestyle costs Rs. x per month.
   Depending on how you want to spend your retirement on a day to day and month to month basis, this will either become Rs. x plus, or Rs. x minus. It might even stay at Rs. x.
   You need to sit down with your spouse and as a family decide, or try to estimate, what kind of life you would like to lead in your golden years.
   
   So now you have the 3 figures you need: Inflation, Life Expectancy, Lifestyle Costs.
   
   To make things simple, all you need to do now is access our Retirement Calculator.
   Feed in your figures and see what Retirement Corpus you need.
    

Conclusion

Remember, your goals are achievable. They might not seem so at first, but with continuous savings and investment over the long term you will achieve exactly what you need.

As the years pass your salary will grow, your expenses will streamline, and your savings habit will get stronger. Make long term investments in the right diversified equity mutual fund schemes, and remember to have your debt and gold allocation in place and have a sufficient contingency reserve available in case of any financial emergencies.

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Comments
stephan@careerleader.com Nov 04, 2011 I had no idea how to approach this before-now I'm locked and loaded.
ellawonglin@hotmail.com Nov 04, 2011 Didn't know the forum rules allowed such brilliant posts.

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