Achi news desk-
Planning for life after retirement is the most important. Here we tell you how you can smoothly transition from a busy work schedule to a relaxed retirement.
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It doesn’t matter if you are a professional, or a small business owner, everyone wants to have significant funds at retirement so that they can spend the rest of their lives comfortably with their families. After all, it can be problematic for someone who took care of his family until the age of 55-60 to be financially dependent on others to fulfill his needs. And to avoid such a situation, retirement planning is necessary. But what is retirement planning, and what factors should be considered? And most importantly, what is rule 555 for retirement. Let’s find out about all this.
First, let’s understand what retirement planning actually is. Retirement planning is an ongoing process by which you prepare, during your earning years, for the years when you will not be actively earning, i.e. retirement. Simply put, the fixed investments you make for old age in your youth is retirement planning. When preparing a retirement plan, we must pay attention to several things such as:
When to retire?
At what age do you want to retire, 55 or 60? What kind of lifestyle do you want after retirement, simple or luxurious? How much money will you need during retirement and for how long, etc.
If you want to have a substantial corpus at the time of your retirement, then it is necessary to understand the triple rule 5. Rule 555 says that if you start investing Rs. 5,000 at age 25 in a mutual fund, then at age 55, your retirement corpus will be around Rs 1 crore 76 lakh. However, if you increase your investment by 5% every year, i.e. increase your investments by 5% every year, then at the age of 55, you will have Rs. 2 crores 63 lakhs as your corpus. In both cases, an approximate return of 12% is assumed. However, in the long run, you can earn returns of over 12% in equity mutual funds.
SIP phase
Rule 555 of retirement instills the habit of regular investment, which is very important for retirement planning. Many people start investing late, like when they reach the age of 30 or 35. Some people want to retire early. Some people may need a large retirement corpus. In such cases, some changes in retirement planning are necessary. There are two ways to do this. First, you start a large monthly SIP. If it is not possible to start with a big investment initially, then you have another option of Step-Up SIP, which means you start with a small amount and then keep increasing your SIP amount every year.
For example, if you are 30 years old and want to retire at 50. For your post-retirement life, you will need a corpus of Rs. 5 cars. According to Goal SIP calculator, accumulate Rs. 5 crores in 20 years, your monthly SIP or investment should be Rs. 50,000. Here the estimated return is 12% per year.
The second way is that you start with a SIP of Rs. 25,000. With the Step-Up SIP facility, choose to increase your SIP amount by 10% every year. Thus, in about 20 years, you can create a retirement corpus of about Rs. 5 cars.
During retirement planning, people often make a very common mistake. They only think about arranging money for daily expenses. But they don’t pay attention to medical expenses. As age increases, so does the risk of disease. So that your entire pension fund is not spent on medical expenses alone, health insurance is necessary. Remember, taking out health insurance at a young age gives you greater coverage at a lower premium.
You’ve probably heard that quote that if you’re born poor, it’s not your fault. However, it’s entirely your fault if you die poor. So, don’t make such a mistake. Start investing as soon as possible. The earlier you start investing for retirement, the better. Time plays a crucial role in wealth creation and compounding. The longer your investment time, the more your money grows.
Published: April 5, 2024, 11:30 am IST
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