Seven golden rules you should follow to check post-retirement expenses
Who does not want to secure his/her retirement life. Ideally, we work day and night just to have a peaceful post retirement life.
But, the question is how much money one should save for retirement say 30 years from now?
To answer that, it is important to estimate the post-retirement expenses.
Often, while calculating cash flow requirements post retirement, we visualize a low-profile lifestyle and consumption needs in post-retirement life. Consequently, we end up projecting lower ‘real cash’ flow needs.
Then what to do?
Speaking with Zeebiz, Ajit Narasimhan, Category Head - Savings and Investments, BankBazaar.com, said that it is necessary to follow seven golden rules of post-retirement monthly expenses while planning a corpus:
a) Factor inflation and factor real inflation. Let your retirement calculations assume inflation at nothing less than 8% CAGR. It would always be better to be on the higher side. If the inflation isn’t as high as you projected, you would have more funds at hand. However, if your projections are substantially lower, you would be in tight straits.
b) Assume no clamp down in lifestyle and consumption needs. Human beings are inherently averse to accepting change. This is more so the case when it is a scale down instead of a scale up. Moreover, there would always be additional lifestyle expenses that come with age than you may think of as necessary now.
c) Prioritize your expenses into 3 categories – must have, nice to have, and can do without. Try to live without the ‘can do without’ before you retire. This will help you address the previous point as well as give you a more realistic picture of what your expenses are like currently and what they could be like in the foreseeable future.
d) Project your expenses into monthly and annual expenses. Annual expenses include things like car insurance, medical insurance, home care initiatives like pest control and AC annual maintenance. Factor in all the expenses you undertake on an annual basis.
e) Build in capex spends. For instance, you will need to replace your car once in 5 years, will need a TV once in 8 years, a mobile once in 3 years, and so on. These can be a major drain post retirement.
f) Once you arrive at these factors, sum these up and back-calculate when you intend to retire. Project a realistic life span for yourself of at least 80 years at the minimum. Now use these numbers to calculate your corpus.
g) Break this corpus in yearly and monthly expenses.
However, another expense which needs to keep in mind is "medical expenses". Post-retirement, you need to have a comprehensive medical policy that covers you and your family members in case of eventualities.
"This is extremely important as an ineffective policy or lack of a medical insurance can throw all your plans out of the kilter since the need medical intervention and scope of medical expense is very difficult to predict," Narasimhan added.
Hence, start early, or from your very first year of work as retirement planning should be in your priority list.
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