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Kotak Life Time Income Plan

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Ref. No. KLI/22-23/E-BB/1052

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9 Steps to Figure Out How Much Money You Will Need for Your Post-retirement Plans

Financial planning will help you save money for retirement days and will help generate wealth for your golden days.

  • 5,203 Views | Updated on: Oct 14, 2024
Calculate Retirement Earnings

Financial planning for retirement is a crucial aspect of financial management, ensuring a comfortable and secure future. Retirement is supposed to be a time of transition while responsibility-free living as well. It is essential to start retirement planning as soon as you start earning to ensure no financial worries later on.

One of the fundamental aspects of financial planning for retirement is determining how much money you will need to sustain your desired lifestyle after retirement. The challenge is to figure out how much money you will need for a comfortable life after retirement. It is a common notion that retirement planning is a complicated matter, but it is not. Let us understand the importance of post-retirement plans and how much money you need to live a comfortable life after retirement.

9 Steps to Calculate Post-retirement Corpus

Financial planning for retirement involves careful consideration of your financial needs and goals for the future. One of the fundamental aspects of retirement planning is determining the corpus you will need to sustain your desired lifestyle during your post-retirement years. Calculating your post-retirement corpus requires evaluating various factors such as anticipated expenses, inflation, life expectancy, and investment returns. Here are ten effective methods to help you calculate your post-retirement corpus:

1. Decide Retirement Age

Although the most prevalent age to retire in India is 60, many people want to retire early so they may pursue a hobby, travel the globe, or do volunteer work. Determining the retirement age will assist in figuring out how much money will be needed to retire comfortably.

Pro Tip: It is advisable to consider life expectancy while deciding the retirement age and money needed at the time of retirement.

2. Calculate Monthly Expense After Retirement

Making a list of monthly expenses after retirement is the first step. The most usual expenses are

  • Grocery bills
  • Utility bills
  • House maintenance
  • Travelling

Pro Tip: Do not forget to factor in inflation while calculating expenses post-retirement.

3. Calculate Monthly Income After Retirement

The process of calculating monthly income after retirement involves considering various sources of retirement income. These sources typically include pensions from both company and government schemes, as well as income generated from personal retirement savings. Here’s a breakdown of potential income streams:

  • Pension from company
  • Pension from EPF
  • Income from a pension policy

Pro Tip: Any rental income must be calculated according to the estimated value post-retirement.

4. Calculate Net Income Required

The process of calculating the net income required involves a straightforward yet crucial financial assessment. This calculation hinges on deducting your monthly expenses from your total monthly income, thereby revealing the amount of disposable income available for savings, investments, and other financial goals.

Pro Tip: If monthly expenditure is ₹50,000 and monthly income is ₹30,000, then the net income required is ₹20,000.

5. Calculate the Future Value of Required Income

Everyone has the option of retiring at a different age- the additional income required must be calculated according to inflation at that time.

Pro Tip: Experts advise using 6% inflation, the average of the past 10 years, in calculations.

6. Calculate Retirement Corpus

The total amount of money accessible at retirement is referred to as the retirement corpus. Since life expectancy is constantly increasing, it might be a bit tricky to calculate the retirement corpus. Retirement planning, according to experts, should be done until the age of 90.

Pro Tip: Since the retirement corpus must last 25-30 years after retirement, it is best to allocate a portion of the assets towards equity growth.

7. Track and Review The Plan

Once the retirement plan is put into action, it is important to review it periodically. If there are any sudden changes in the financial situation, they must be factored into the plan and adjusted accordingly.

Pro Tip: At least once a year, the retirement plan should be examined to see if it is on track to fulfil the goal.

8. Calculate Current Corpus

The majority of people would have also built up a retirement fund through various financial instruments. Add them all together to find out how much money you have set up for retirement.

The different instruments are

  • PDF
  • NPS
  • Pension plans
  • Insurance policies

Pro Tip: Begin investing as soon as possible. Compounding is a powerful tool that should not be overlooked.

9. Calculate Additional Monthly Saving to Meet Additional Corpus

Do not be alarmed if the computations yield a large figure. People who begin investing at an early age will have a long time to accumulate the required retirement funds.

Pro Tip: Keep your financial knowledge up to date. It will go a long way towards establishing the necessary retirement corpus.

Importance of Post-retirement Plans?

Retirement marks a significant milestone in one’s life, a time to step back from the rigors of work and embrace a new chapter of leisure, exploration, and fulfilment. However, amidst the excitement of retirement, it is crucial to recognize the importance of post-retirement plans. These plans encompass a range of financial, health, and lifestyle considerations designed to ensure a comfortable and secure future beyond the working years.

Financial Security

One of the primary reasons for developing post-retirement plans is to achieve financial security during retirement. After decades of hard work, individuals deserve peace of mind knowing that they have sufficient resources to maintain their desired lifestyle without the need to rely solely on employment income. Post-retirement plans typically involve strategies such as pension funds, savings, investments, and annuities tailored to generate a steady stream of income during retirement years.

Healthcare Needs

As individuals age, healthcare becomes an increasingly important aspect of retirement planning. Medical expenses can escalate during retirement due to age-related health issues, making it essential to have adequate healthcare coverage. Post-retirement plans often include provisions for health insurance, long-term care insurance, and savings earmarked for medical expenses. By addressing healthcare needs proactively, retirees can minimize financial strain and ensure access to quality healthcare services when needed.

Lifestyle Choices

Retirement offers an opportunity to pursue passions, hobbies, and interests that may have been sidelined during the working years. Post-retirement plans should account for lifestyle choices, including travel, leisure activities, volunteer work, and spending time with loved ones. Budgeting for expenses and setting aside funds for fulfilling experiences can enhance the quality of life during retirement and contribute to overall happiness and well-being.

Legacy Planning

Beyond personal financial goals, post-retirement planning involves considerations for legacy planning and estate management. Individuals may wish to leave a financial inheritance for their heirs, support charitable causes, or ensure the smooth transfer of assets to beneficiaries. Estate planning tools such as wills, trusts, and powers of attorney play a crucial role in safeguarding assets and ensuring that one’s wishes are fulfilled after their passing.

Inflation and Market Volatility

Post-retirement planning takes into account the impact of inflation and market volatility on retirement savings and investments. Rising living costs can erode purchasing power over time, emphasizing the need for inflation-adjusted income streams and diversified investment portfolios. By incorporating risk management strategies and periodic portfolio reviews, retirees can mitigate the effects of market fluctuations and maintain financial resilience throughout retirement.

Peace of Mind

Ultimately, the importance of post-retirement plans lies in providing retirees with peace of mind and confidence in their financial future. By taking a proactive approach to retirement planning, individuals can enjoy their golden years with a sense of security, knowing that they have prepared diligently to meet their financial goals and aspirations. Whether it is traveling the world, pursuing lifelong dreams, or simply relishing the joys of retirement, effective post-retirement planning sets the stage for a fulfilling and rewarding life after work.

Final Thoughts

When calculating your post-retirement corpus, it is essential to revisit and adjust your estimates periodically to account for changes in lifestyle, expenses, inflation rates, and investment performance. By utilizing these ten methods and staying proactive in your retirement planning efforts, you can achieve greater financial security and enjoy a fulfilling retirement lifestyle. Remember, the key to a successful retirement lies in thoughtful planning and diligent preparation.

Key Takeaways

  • Evaluating your current financial status, including assets, debts, and income sources, helps you start your retirement plans.
  • Determine the age at which you plan to retire, as it impacts the duration of retirement and required savings.
  • Analyze future expenses, considering housing, healthcare, transportation, and leisure activities while factoring in inflation.
  • Recognize the impact of inflation on purchasing power, adjusting estimates to ensure savings keep pace with rising costs.

FAQs


1

How do I determine my post-retirement expenses?

Estimate your expected expenses during retirement by considering factors such as housing, healthcare, utilities, food, transportation, and leisure activities. This will give you a rough idea of your annual spending needs.



2

What is the income replacement ratio, and how does it help in retirement planning?

The income replacement ratio calculates the percentage of your pre-retirement income that you will need to replace during retirement. It helps in estimating the amount of savings required to maintain your lifestyle after retirement.



3

How can I account for inflation when calculating my post-retirement needs?

Factor in inflation by adjusting your estimated expenses for each year of retirement. Historical inflation rates or projections from financial experts can help you account for rising living costs over time.

Suggested Readings

1. Retirement planning with a systematic life insurance plan

2.Save Early to Keep Living Your Dreams Post Retirement
Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Kotak Life Time Income Plan

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Features

  • 6 Plan Options
  • Tax benefits ^
  • Higher annuity rates for higher purchase price
  • 4 Annuity Modes
Want to Know More?
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Ref. No. KLI/23-24/E-BB/1052

T&C

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The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.

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