How to effectively use a SIP calculator to estimate your retirement corpus?

In India, the average life expectancy is 69 years while the retirement age is 60 years. Even if you go by this average life expectancy, you need to have enough amount in your bank account to live the remaining years after retirement. This is where retirement planning comes in. Whether you are a salaried person or have your own business, retirement planning is essential for all.

What is retirement planning?

Retirement planning is about preparing yourself for the life after retirement so that you can meet your financial aspirations and live independently. Retirement planning includes estimating the money you would need to live the life you want after retirement, then saving for that goal and investing in such a way that will help you accumulate the corpus you need to have for your retired life.

As every individual is different, the retirement plan has to be different as per unique requirements, lifestyle, standard of living, and financial goals of the person. There is no right age for starting retirement planning, rather, the sooner you start, the higher amount you can accumulate.

Essential steps in retirement planning

Retirement planning involves certain steps which you need to follow –

  1. Anticipating the time horizon:

The first step towards your retirement planning is understanding the time you have to save for your retirement and the number of years after retirement for which you need to save the amount. While in the starting paragraph you have seen the average life expectancy in India, you need to plan for yourself according to your lifestyle, and health issues. Let’s, take an example to understand this better. Suppose, at present your age is 30 years, you have a stable income source and you want to plan for 20 years after retirement which is up to 80 years. So, you have 30 years in hand to plan, save, and invest for the next 20 years after retirement.

  1. Estimating the amount you need for retirement:

The next step is crucial which involves estimation of the amount you would need after retirement. Here you need to analyze your monthly expenses at present, then you need to take into account the inflation in the economy and again find out the future value of the monthly expense after 30 years. Then include medical needs and other financial aspirations like children’s marriage, higher education, foreign trips, and others. If you sum up all these, you will get the amount you need to save for your retired life.

  1. Understanding your risk tolerance:

Thenext thing you needto determine is your risk tolerance level. If you are a risk-taker then you can invest in equity mutual funds and equity-related instruments while for the risk-averse people planning for retirement, debt or hybrid instruments can be suitable. You need to analyze the risk you can take and the return you want. Also, you need to keep in mind the time horizon you have, suppose, today you are in your 30s you have 30 years more to retire. You can invest in equity mutual funds however if you are in your 50s and just have 10 years left for retirement, then investing entirely into equity can be a huge risk.

  1. Use a Mutual fund calculator:

Once you know the amount you need to save for retirement, your risk tolerance level, and the tenure for investment, you can check different investment options to invest your money from now onwards. By using  SIP Calculator, you can find out how much you need to save every month to accumulate the amount you have estimated for retirement. SIP investments can be best for salaried people who have a stable income every month. If you are in business, you can go for either SIP or lump sum investment. You can use the  Lumpsum calculator for lump sum investments. Using these calculators, you can check and compare the different amounts you need to invest for different risk tolerance levels, for different tenure to reach your ultimate goal. For instance, if you are a risk-taker, you can select the ‘Aggressive return’ option where the rate of return will be high as most of your investment will go into equities. If you want medium risk, you can choose the moderate or conservative return option. Similarly, you can change the number of years for which you need to save, and accordingly, the amount you need to invest will change.

  1. Determining the after-tax returns:

Whether you invest in mutual funds, or other asset classes, capital gain taxes will be applicable on the returns generated from your investment. So, just finding out how much you can accumulate using the calculators won’t serve the purpose. You need to also find out the return you will be left with after paying the taxes.

Conclusion

Retirement is not something to cry upon, it is those years where you can live the life you always wanted but due to work pressure, and other responsibilities, you couldn’t. With the help of proper retirement planning, you can enjoy life post-retirement.

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