Planning for Retirement: Inflation is increasing your retirement expenses
Suspense Crime, Digital Desk : Rs 1 Lakh a month at the time of retirement can be said to be enough in this day and age for a comfortable lifestyle. However, the main question that comes to the fore is, to what extent will these expenses rise in the coming years and how large will be the corpus to meet them? Let's understand the inflation adjusted and time adjusted corpus for your retirement and which options can be relatively safe.
To what extent will the expenses increase?
Your expenses are Rs 1 Lakh today. If the inflation rate is 6 percent then after 30 years, you will need an income of around Rs 5.7 Lakh a month at the time of retirement if your age is 30 years, whereas at the age of 40, it will need Rs 3.2 Lakh a month in 20 years and at 50 years you would require around Rs 1.8 Lakh per month in 10 years. Thus, in this way you can see that in the planning of retirement, inflation should never be ignored.
According to investment experts, at the time of planning your retirement, two things are to be maintained -safety and growth.
Which investment options are safe?
1. EPF & PPF: Employees' Provident Fund (EPF) and Public Provident Fund (PPF) are considered safest for long term.
- Guarantees returns (fixed as decided by the government).
- Tax Benefits (EEE category).
- Almost no risk involved.
PPF requires you to keep money invested for 15 years and then it is good for long term.
2. NPS (National Pension System)
It is specifically made for retirement.
- Equity and Debt Mix.
- Additional tax benefit involved.
- Pension for life after retirement.
This option would be better in relation to inflation.
3. SIP in Mutual Fund (Equity + Hybrid Funds)
If you have to beat the inflation in long term, then equity is mandatory.
- With SIPs you would have to make minimum investments and can build a good corpus.
- Return will be somewhere around 10-12 % on an average basis on long term.
- Good options can be flexi-cap fund, index funds or hybrid funds.
This tool would be mandatory for 20-30 years of investment.
4. SCSS (Senior Citizens Savings Scheme)
Safe investment option for income post retirement.
- Guaranteed returns from a Government scheme.
- Quarterly interest payouts.
- Stable and safe return option.
Inflation reduces the purchasing power of money; hence only "safe" investments are not adequate.
The right approach should be
- Growth + Safety Balance
- Start as early as possible
- Invest for long term
only then would your target income of 1 lakh a month at the time of retirement be met.
