How do you picture yourself after retirement?

Going on a foreign trip every year?

Spending an enormous amount of time with family?

Starting a business?

Volunteer and change the world?

Build your dream house?

Unlike several generations before, people nowadays have become more ambitious regarding their dream retirement. Most of them dream happily about the days when they can walk away from their job, bosses and work to lead a life on their own terms. To finally get the time to sit back and relax on a beach, rejoice in a sail at the Caribbean with their grandkids or enjoy the bliss of not using an alarm clock!

In every case, you have to plot out how exactly you’ll reach that phase with sufficient retirement kitty because the chances are high that when you sit down and calculate the corpus you’d need to save for a worry-free retirement, reality hits you hard.  In fact, like everyone else, you may be saving diligently for your retirement, considering that it would be sufficient. But, did you consider the inflation rate while doing Maths for your retirement plan? Perhaps not!

Why is ignoring inflation for retirement wealth planning a big risk?

Many people often ignore or underestimate the effects of inflation on expenses through the retirement period. However, by doing so, you are undertaking one of the biggest risks to your retirement planning. Unfortunately, the damage done to your retirement plan at present can never be amended once you retire. After entering into retired life, there would be no regular stream of income, and you’ll depend solely on what you have saved throughout your life. So, there is no room for myths or mistakes in the planning for retirement savings.

Inflation can eat into your retirement corpus, and it will pose a serious problem since the life expectancy rates have gone up. It means that to lead a comfortable retirement, you need a corpus that will last longer. For example, you start saving for retirement from the age of 30 and save for 20 years after retirement. During your 30 years of saving, you will have regular income along with various financial liabilities of your family. You may think that a corpus for 20 years after retirement would be sufficient, but as life expectancy rate has escalated, you will live longer than you’d calculated. If you do not consider inflation in your calculations, it will cut down the value of your savings.

How can you tackle it?

Better safe than sorry! Follow some golden rules to build a retirement corpus that outlives you.

1. Get a concrete idea

Have you ever calculated your retirement corpus?

Or, you have been supplementing your retirement fund with only a vague idea. Haven’t you?

Take help of Aviva Retirement Calculator to get an accurate idea of how much do you need after retirement to maintain the same lifestyle you are leading now. The result will help you build a failsafe roadmap for your retirement plan.

2. Be an early bird

It goes without saying that earlier you start your retirement plan, ideally in your late 20s, the investment will help you beat inflation. It is advisable that start investing 10 percent of your income as soon as you receive your first salary. A consistent saving over 30-35 years will help you avail the power of compounding and build a large corpus that can beat the inflation rate. An earlier planning gives you sufficient time to revise your plan if you wish to modify it at any point. As your income rises, increase the quantum of your investment.

3. Don’t depend on just PPF

PPF may be the major contributor of your retirement fund as it allows you to enjoy tax benefits. Also, PPF investment is eligible for deduction under section 80C of the Income Tax Act. However, you should not depend solely on the PPF account. Your retirement portfolio should be based on multiple avenues, depending on your income, age and risk appetite. Diversifying your investments is strongly advised. Invest in products that yield high return and cushion the impact of a rising inflation rate. Boost your returns by investing in equity-based mutual funds. Lower your risk by choosing an efficient retirement plan that guarantees cash back or maturity benefit to meet your short and long term needs.  Moreover, strictly avoid withdrawing your PF money, especially while switching jobs.

4. Stay insured

Medical expenses are rising leaps and bounds and are potential to make a dent in your retirement fund. Many people don’t buy individual health plans bearing in mind that they are covered by their employers’ plan. However, you will be covered only till you are employed with them. It is not a wise decision to depend only on group policies. Buy an individual health policy, preferably earlier in life to enjoy lower premiums.

Always remember that the day you plant the seed is not the day you eat the fruit. Building a strong retirement corpus is a daunting task and will take a long time, but the result will be rewarding. If planned well, you will enjoy good returns that will provide you with comfort in your golden years.

AN Jul 3/19

Talk to an Expert