Make your investments outlive you!

Everyone wants a comfortable retired life. There is a lot of market research that suggest that very few people actually get there. There are several reasons why many of us fail to save enough for our retirement. Some fail to accurately predict their expenses while others may start too late to save up for retirement. Nuclear families, increased longevity and volatile markets and an only add to the challenges.

Here is a step by step guide to plan for your Retirement. We have created an interactive calculator that you can use to customise your retirement plan. Let’s get started!

A step by step guide to plan for your Retirement

Step 1. Estimate your likely expenses post retirement

Estimating your expenses can be a big challenge in itself. The key to accurately estimating your expenses is to have clarity in the way you intend to live your life post Retirement. Where would you live? How would you spend your time? Would you be travelling a lot more or a lot less? Would you like to donate to charity? There are many questions to be answered.

There are a couple of approaches that we can take in estimating our likely expenses.

The first approach is to plan from scratch. Take a pen and paper and actually write down every expense you are likely to incur when you retire. Personally, we recommend this approach as it will give you a good idea about the nature of your expenses and also an exact amount to work with.

If you think that this is too time consuming and would like to go through the same at a later date, you make a quick estimate of what your likely expenses could be in your retirement years. As a thumb rule, take 80% of your current expenses as a starting point.

Step 2. How much have you saved currently towards this goal?

Step 2 is to put together a list of all the investments you have already made towards this goal.

(a) Current Value of Debt Investments: These investments could be in Bank Deposits, PPF, EPF, Insurance products, Debt Mutual Funds or any other debt instrument. (b) Current Value of Equity Investments: Some of you might have been saving through Systematic Investment Plans (SIPs) in equity mutual funds or have invested in equities or equity mutual funds.

This gives you an idea of your current savings toward this goal and based on your return assumptions can estimate how much these investments will be worth when you retire . If you are lucky you may have a surplus, or else you may have a shortfall that needs to be bridged using an appropriate savings plan.

3. Determine your asset allocation

You have already determined how much you need (Step 1) and how much you already have (Step 2) to build your retirement corpus. The savings gap has to be filled by saving and investing appropriately. You now need to reflect on how much risk you can tolerate and decide the appropriate mix of assets (asset allocation).

Since investment returns are unpredictable, it is important to make some assumptions on the likely returns in the future. We would encourage you to use conservative estimates while budgeting for future returns.

Basis the asset allocation and the estimated returns, you can arrive at a potential return that you will use to develop a savings plan. As you can see, a higher allocation to equity means a higher potential return but also a greater level of risk. Most investment plans fail due to a higher level of skew towards debt or equity. Getting the right balance is key.

Step 4. Set up your savings plan to meet the gaps, If any

Very few investors are blessed with sufficient funds to build their retirement corpus. If you are one of those lucky ones, you just need to review and readjust your portfolio periodically.

Conversely, if you have a savings gap, you need to create a plan with the right blend of products to help you bridge this gap and eventually meet your target savings amount.

Next Steps

I hope this step by step plan and the calculator helped you gain clarity on how to go about planning for your retirement.

At Ortium, we are committed to help individuals meet their Financial Goals and would be delighted to put together a savings plan for you that ensures that you lead a comfortable retired life! Please feel free to write to us and schedule a discussion.