Your retirement goal will differ from others depending on several factors involving your lifestyle and income during your employment years. Another factor which you should account for in your retirement goal is inflation.
The factor which makes inflation a strong factor to consider in your retirement goal is that it will affect your life during the later years. As you progress in your retired life, your chances of earning from employment reduce and so do your chance of correcting the investment mistakes.
Thus, the earlier you factor in inflation in your retirement goal the better. Other factors which will define your retirement goal are:
Process of Planning for Your Retirement Goal
Retirement goal planning is a simple process. Retirement consists of two distinct financial phases – accumulation and distribution. The accumulation phase is when you are earning from employment and building your retirement pool.
In the distribution phase, you use the accumulated funds to replace your income from employment.
If you are 30 years of age and earning Rs. 10 lakhs per year, at the age of 60, your first year’s monthly income will look as given below:
|at 10% of your income
||at 20% of your income
||at 25% of your income
Disclaimer: Rate of return for the retirement funds has been assumed at 8% p.a.
This is assuming your annual income grows by 5% every year during your employment years. You will also withdraw your pension at a growing rate of 5% per year to account for inflation, until the age of 90.
You can also, look at these amounts as, “you can contribute a higher percentage of your annual income towards retirement to retire earlier.”
So, for the accumulation phase, your retirement goal may not account for your actual expenses, but only your rate of contribution.