Building your dream retirement: Understanding the power of a healthy retirement corpus

Retirement can be a tricky phase of life for more reasons than one. As you bid goodbye to the hustle and bustle of a busy professional career, you also recognize the fact that you won’t draw a regular salary. But just because you stop earning, it doesn’t mean that you must stop leading a comfortable and secure life.
So, how can you ensure that your retirement years turn out to be the ‘golden period’ of your life? Simple – by understanding the power of a robust retirement corpus.

In this article, we will take you through the significance of having a substantial retirement fund and how you can build a corpus that empowers you to embrace the second innings of your life.

Table of contents

• What is retirement?
• How do you calculate the required retirement corpus?
• How do you invest to make the required retirement corpus?
• Significance of a robust retirement corpus
• Building your dream retirement corpus

What is retirement?

Retirement gives you the freedom to pursue your passions, spend quality time with loved ones, embark on new adventures, and relish the fruits of your labour. Though the retirement age in India is between 58 - 60 years in the private sector and 60 years for government employees, many are considering raising it to 65 years.

Unfortunately, in a life full of uncertainties, planning for retirement seems like the last priority for many. In fact, according to a survey, over 85% of people above the age of 50 years regretted that they hadn’t started investing for their retirement sooner. That said, there are also people who plan for retirement early in their careers and reap the benefits of the decision later.

At the heart of a successful retirement lies a robust retirement corpus, a financial reservoir designed to sustain you through thick and thin when you are no longer drawing a salary. A retirement corpus is a nest egg built over the course of your working life through savings, investments, and pension contributions. It is a potent instrument that provides you with financial security, independence, and the means to enjoy the lifestyle you desire during retirement.

How do you calculate the size of your required retirement corpus?

Calculating your retirement corpus involves estimating future expenses, considering retirement age, and accounting for income sources and investment growth. It’s also important to account for inflation. Here are some steps involved:

• Estimate expenses: Include lifestyle, housing, healthcare, and inflation.
• Determine retirement age: The earlier you retire, the longer savings your corpus needs to last.
• Use retirement calculators: These factor in expenses, inflation, and returns to estimate a corpus size.
• Consider income sources: Include pensions or rental income, if any.
• Estimate expected investment growth: Set realistic return assumptions based on your chosen investment avenue. Investments that offer better long-term return potential usually entail higher risk, so assess your risk tolerance before choosing.
• Review and adjust: Regularly update your plan based on market changes.

How do you invest to build a retirement corpus?

Investing for retirement requires strategic asset allocation, regular investments, and periodic reviews.

1. Asset allocation: Combine equity, debt, and gold based on risk tolerance and time horizon to balance risk and return potential.

2. Investment vehicles: Choose investment avenues based on your horizon and risk tolerance. Equity-oriented mutual funds can be suitable for long-term wealth-creation potential but entail market risk. Stable avenues such as PPFs and FDs can be considered by risk averse investors. Or, you can allocate some of your portfolio to long-term growth-oriented investments and the other to more stable avenues. You can also consider hybrid mutual funds, which combine equities and debt securities for a more optimal risk-return balance. However, market risks still apply.

3. Systematic investment: Invest consistently via SIPs for disciplined wealth accumulation.

4. Regular review: Rebalance portfolio to maintain desired allocation and manage risk.

5. Seek professional advice: A financial advisor can tailor a strategy to your needs.

Significance of a robust retirement corpus

By accumulating retirement fund through the years, you can shape your dream retirement and get several key benefits:

• Financial security: The right retirement plan can ensure that you have a steady stream of income even after you stop working. It acts as a safety net, protecting you from unforeseen circumstances, rising healthcare costs, and economic fluctuations. With a secure financial foundation, you can confidently navigate the complexities of retirement without worrying about your financial well-being.
• Freedom of choice: With a healthy retirement corpus, you can make choices that align with your aspirations and values. Whether it is travelling the world, starting a new business venture, or supporting charitable causes, having a substantial retirement fund enables you to pursue your passions and positively impact the world around you.
• Maintaining a desired lifestyle: Retirement is a time to sit back and indulge in the lifestyle you've dreamt about all these years. A good retirement plan will help you maintain your desired standard of living, affording you the luxuries and comforts you've worked hard to achieve. Whether it's living in your dream home, engaging in hobbies, or spoiling your grandchildren, a sizable retirement fund enables you to enjoy life to the fullest.

Building your dream retirement corpus

Now that we understand the significance of a robust retirement corpus, let's explore how you can build it:

• Start early: Time is your greatest ally when it comes to building a retirement corpus. The earlier you begin saving and investing, the longer your money has to grow through the power of compounding. Even small contributions made consistently over an extended period can result in substantial gains.
• Set clear goals: Define your retirement goals by considering factors such as the lifestyle you desire, anticipated expenses, and any specific aspirations you wish to fulfil. This clarity will help you determine the amount you need to save and invest to achieve your retirement objectives.
• Diversified investment strategy: A well-diversified investment portfolio can help you maximise returns while managing risk. Consider a mix of asset classes such as stocks, bonds, mutual funds, and real estate, aligning them with your risk tolerance and long-term goals.
• Regularly monitor and adjust: Periodically review your retirement plan and adjust as needed. Stay informed about market trends, reassess your risk tolerance, and adapt your investment strategy accordingly. Remember, flexibility and diligence are key to ensure that your retirement corpus remains on track. You can seek the help of a financial advisor to monitor and adjust your investment portfolio.

Retirement should be graceful. If you have lived your life with your head held high, you wouldn’t want to depend on someone in your later years. In this regard, thorough retirement planning can be your most trusted companion. But, to achieve that you must start drawing a retirement strategy as soon as you can. Start early, set clear goals, embrace a diversified investment strategy, and contribute to retirement accounts regularly. This will enable you to accumulate a retirement fund that allows you to live your dream life even after you are no longer employed.

FAQs:

What are the factors to consider when planning for retirement?

You must determine your retirement goals, estimated expenses, and desired lifestyle. Analyze your current savings, investments, and potential sources of income during retirement, e.g., pension. Do not forget to factor in inflation and healthcare costs when planning for retirement.

How much should I save for retirement?

The amount you should save will depend on numerous factors, such as your desired retirement lifestyle, expected expenses, and time horizon. It is suggested to save at least 10-15% of your income for retirement. Additionally, using a retirement calculator in India can help you get a clear understanding of how much you should aim to save.

When is the right time to start retirement planning?

The earlier you start planning for retirement, the better it will be in the long run. It is recommended to start retirement planning as soon as you begin earning a steady income, ideally in your 20s or early 30s, to benefit from the power of compounding.

What are some strategies for building a strong retirement corpus?

Building a strong retirement corpus requires early and consistent savings, strategic investments, and careful financial planning. Choose investment avenues based on financial goals and risk tolerance, and account for inflation. Diversify to mitigate risk and optimise the risk-return balance of your portfolio. Maintain an emergency fund and review your plan regularly.

How much money do I need to save for a comfortable retirement?

The amount can differ for each individual as it is based on income, expenses, financial priorities and lifestyles. Calculating a comfortable retirement corpus requires estimating expenses, factoring in inflation, and considering retirement age. Account for income sources, investment growth, and potential risks. Regularly review and adjust your savings strategy, factoring in healthcare and unexpected costs.

Which investment options are suitable for retirement planning?

Selecting investment options for retirement planning depends on risk tolerance, time horizon, and financial goals. Investors with a high risk appetite looking for long-term growth potential can consider equity-oriented mutual funds. Conservative investors can consider traditional avenues such as Public Provident Funds. Diversification across different investment avenues may also be a suitable strategy to balance risk and return potential.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully
This document should not be treated as endorsement of the views/opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.