Retirement planning aint’ easy. You need to make the following assumptions.
• Correct estimation of how long you are going to live. Even though we can assume the life expectancy of 25.2 years according to LIC mortality tables, there’s the fine print where it says that 50% of people will live past this age!
• Correct estimation of inflation in the distant future. Inflation goes up and down, that we know. When, we don’t know.
• Correct estimation of future expenses. We are not aware of the inflation, the basic assumption for calculating the future expenses, nor can we factor other things that may come up from time to time.
• Correct provision for health insurance. Can you predict what will ail you in the future? Maybe you can, do you?
• Correct estimation of future taxes. With the tax code being rolled out and then rolled back, you do not really know what will be the tax code when you retire.
That’s why most people phase out when they come up with planning for their retirement.
Having scared you enough, I must point out that the assumptions need not be accurate. Look at the numbers as you compass or a tool that tells you whether you are going in the right direction.
It’s more important to get started rather than die of analysis paralysis.
Are you ready to grapple with such financial decisions? After all, it’s your money, your life and your future!
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I’m regular reader of your blog. This is good article but I dont have enough competency to calculate all this so every month after deducting bucks required for comfortable living, I’m able to save 50% of my salary which goes in Equity and Debt (70:30) instruments. Term and Health insurance are there in place. I’m intended to build corpus in this way and take bunch from it whenever required like kids education, marriage or any other events. Is it ok or do I need serious reconsideration in my approach?
Thanks
Jagbir
@Jagbir You are in the right direction and the only thing you need to do is to continue what you are doing. The assumptions are tools (compass) that help in course corrections and since you are already doing as much as possible ( possibly, more than enough!), you continue on your course! Maybe you can share your financial decisions with all of us!
@Ranjan, thanks for your reply. I’d like to share some of my financial decisions:
1. Term Insurance splits in two policies: 1) 50 lacs from LIC. 2) 50 lacs from ICICI (iProtect).
2. Health insurance provided by employer, will purchase my own also soon.
3. Investments in Debt by EPF (automatically from salary deductions) and in PPF a/c.
4. Investments in Equity goes to MFs and in direct stocks in 40:60 ratio.
5. Investing MF part in 4 funds only through SIP: 1) HDFC Equity, 2) Sundaram Paribas Small and Mid Cap and ELSS funds 1) Canara Rebeco Tax Saving, 2) HDFC Tax Saver.
6. Purchasing stocks after deep analysis but still in basic stage (new comer). Will stop purchasing stocks directly if unable to beat index and MF returns over 1-2 years. Currently ahead of both in good margin.
Please let me know your suggestions about my strategy.
Thanks,
Jagbir