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While many women retire at the age of 60, as per official diktat, true retirement has nothing to do with age. “Rather, it’s that stage in your life when you’ve made money and then got that money to work so well that you don’t have to work anymore,” says certified financial planner Jai Adiani. To make a thorough calculation when it comes to planning your retirement, he outlines three steps:
- Work out an estimate for your expenses in the first year you plan to retire: For example, if you are 30 right now, and your yearly expenses amount to about Rs 6 lakh, if you want to retire at the age of 60, allow for an annual inflation rate of 7 per cent (the historical average) and on that basis, estimate what your expenses will amount to at age 60. If you plan to retire in your 50s, buy property that will yield a steady rent.
- Work out the retirement span: During your earning phase, you have a risk of dying early, so you need life insurance. On the other hand, during your retirement phase, you have a risk of living too long, so work out the average lifespan in your family and then add about five years to this number to arrive at your figure. Then, from this figure take out the age you plan to retire at to arrive at the number of years you expect to enjoy retirement.
- Your magic number: Now, compound your baseline figure (arrived at in step 1), at the same annual inflation rate (7%), for the number of years you arrived at in step 2. Add or subtract a reasonable number to this amount, to adjust for any lifestyle changes you hope to make and you’ll have a final ballpark estimate of your ideal retirement corpus.
When retiring in your 30s
For people who want to retire early, Pankaj Namdharani, president of Spa Securities, recommends investing in real estate — an avenue which would earn you a steady income and, as you have time on your side, you may also be able to reap the long-term appreciation that such investments yield. Jai shares this view, but says that it is only possible to purchase real estate if you have a lot of surplus cash that you’re absolutely sure you won’t need in the short term. Maintain a balanced portfolio with about 65 per cent in equity or equity linked products, which pay out regular dividends and park the balance in debt-oriented structures.
When retiring in your 40s
The general rule for equity allocation is you subtract your age from 100 and then invest that percentage in equities (so, if you’re 30, you can invest 70 per cent) never exceeding a maximum equity investment of 75 per cent of your portfolio. Home owners should invest a higher amount in mutual funds and about 20 to 25 per cent in products that would provide an annuity or into fixed deposits. Triple A-rated securities are another avenue you can consider in the present scenario, as these give returns of 10 per cent or more.