In the life of an investor, the mutual fund investment plays an important role as it helps one reach financial goals like child higher education, wealth creation and retirement planning, etc.
Mutual fund investment also helps in tax planning through ELSS mutual fund schemes. Not only that, be it saving for a day or for many years, mutual funds India has a solution for all your investment needs.
One of the important goals of any investors life is retirement planning. Let us discuss why it is important.
Why is retirement planning important?
- Post retirement the main source of regular income for investors is from their investments. Therefore, investors need to have enough savings and investments to meet this requirement.
- If you do not have sufficient savings or investments, you will have to be financially dependent on your children which may not be a good situation for you.
- With innovation and research in medical science, the retired lives are getting longer. Therefore, the retirement corpus should not only be large enough, but it should also take care of your spouse’s life post your demise and the rising inflation.
- For example, you are aged 30 years and your monthly household expenses is Rs 40,000. Let us also assume that you plan to retire when you are aged 60. Assuming the inflation rate to be 5%, your monthly household expense post-retirement will be Rs 1.73 Lakhs. How do we calculate this? You can input these in a retirement calculator and get the results instantaneously.
- Not only that, due to inflation, the household expenses will continue to grow every year. Taking the above example forward, your monthly expenses will be Rs 4.59 lakhs when you turn 80.
How should you plan for retirement?
- Calculate the corpus needed at retirement: Using a retirement calculator you should calculate what corpus you need at retirement, taking inflation in account. The income from the accumulated corpus should be good enough to last 25 – 30 years of your retired life.
- Calculate how much to save: Once you know the corpus required at retirement, you need to calculate how much to save or invest regularly to reach your retirement corpus. Let us assume your retirement savings target at the age of 60 is Rs 5 crores. Let us see how much you need to save/ invest monthly from the age of 30. Using a retirement plan calculator, we find that you need to save Rs 10,800 every month for 30 years. This is based on 12% CAGR.
- Start as early as possible in your life: Time being an important factor in investment returns, you should start early to reach your retirement goal. In the above example, if you start investing at age 25, you need to save only Rs 4,100 monthly in lieu of Rs 10,800 (This if based on 12% CAGR).
- Saving is not enough; you need to invest: You need to channelize your savings through mutual fund investment to get market linked returns. Saving through fixed income returns may not be wise as the returns will be lesser than mutual funds.
Mutual fund investments can provide solutions for a wide variety of goals including retirement. Investors should invest in right mutual fund schemes suiting their risk profile. While doing retirement planning, use retirement plan calculator, retirement calculator or retirement calculator India as these can give you good guidance.
You may also consult with a financial advisor or retirement planner if you need help in planning your retirement.