Retirement Planning is a strategy planned to fulfil the post-retirement requirements, like routine expenses, medical expenses, etc. It helps to get prepared financially well in advance, letting you maintain your present lifestyle, keeping the inflation factor in mind. This process includes setting up financial objectives related to post-retirement, assessing the financial requirements, & estimating the amount required to be invested today for a better future tomorrow.
For better retirement planning, a retirement calculator is a must, which will help you estimate the funds required today to lead a comfortable life after retirement. This free-of-cost financial tool can be easily accessed online & is quite easy to operate for beginners. It requires just entering details to ascertain the amount of funds required today to lead a desirable post-retirement life.
Also Read : Best Pension Schemes & Plans for a Better Retirement Life
How Does a Retirement Calculator Work?
A retirement calculator is a financial tool that helps ascertain the amount of funds that would be required post-retirement to maintain the present lifestyle. The formula used by a retirement calculator to calculate the amount of money that would be required after your retirement is as mentioned below:
FV = PV (1+r) ^ n,
Where,
FV = Future Value
PV = Present Value
r = Expected Inflation
n = Time to Retirement
Let us understand the concept with the help of an example,
Mr. Rahul is presently 35 years old & will retire at the age of 60 years. He requires INR 35,000 per month after retirement to fulfil his family requirements. He considers his life expectancy to be 80 years. The inflation rate is considered to be 6%.
Now, let us suppose the funds are invested in a bank fixed deposit with an 8% yield. Hence, according to the above-mentioned formula:
FV = PV (1+r) ^ n
= 35,000 (1 + 0.06) ^ 25
= INR 150215.5 approx.
Hence, the income required annually = INR 150215.5*12 = INR 18,02,586.
The retirement tenure is 20 years according to the life expectancy, with a yield rate of 8% & an inflation rate of 6%.
Hence, the inflation adjusted rate of return would be = (1+0.08) / (1+0.06) – 1
= 0.001575
Retirement tenure in months = 12*20 = 240
Hence, PMT = INR 18,02,586 / 12 = INR 150215.5
Using the PV function,
Retirement corpus would be = INR 3,00,48,832
Hence, it can be said that for a required annual income of INR 18,02,586, the amount would be INR 3,00,48,832 in the 60th year at a return rate of 8%.
A retirement calculator requires the following details to calculate the amount of funds required post-retirement:
- Age of the individual
- Retirement Age
- Estimated life expectancy
- Current Annual Income
- The rate of increase in the annual income
- Present retirement savings
- Investment Corpus
- Types of investment presently held
- Total per month expenses
- Estimated inflation rate
Benefits of a Retirement Calculator
Provided are the benefits of a retirement calculator:
- It helps in assessing the amount of funds required every month to build the retirement corpus that would be required after retirement.
- It helps you identify suitable investment opportunities that should be grabbed.
- It helps you identify the best retirement plans that best suit the retirement corpus accumulated by you & your suitable risk appetite.
- It helps compare the different retirement plans available by most competitive organisations.
- It helps you identify different retirement planning strategies available, thus allowing you to review them further.
- It helps make quick decisions in a short period of time, implementing suitable retirement planning strategies in no time.
- It helps in making estimates customised according to your financial status, thus helping to make future plans in an efficient manner.
- It encourages you to start saving early to build a retirement corpus, which includes the benefits of compounding.
- It also takes into consideration the inflation factor, which helps you maintain your future buying capacity.
Also Read : Retirement Benefits of Government Employees
Steps to Use a Retirement Calculator
Provided are the steps to use the retirement calculator:
Step 1: Provide your present age.
Step 2: Also, enter the desired age of retirement.
Step 3: Input the realistic estimate of your life expectancy.
Step 4: Provide the present monthly expenses, which will include both fixed & variable expenses. Additionally, you can also provide the list of mandatory & optional expenses.
Step 5: Now, provide the current value of your retirement corpus, i.e. the amount required to be saved for retirement purposes.
Step 6: Input the expected rate of inflation.
Step 7: After that, it also requires you to provide the expected annual rate of return on the investments made.
Role of Retirement Calculator in Retirement Planning
The retirement calculator not only assists in better retirement planning but also helps in identifying the Best Retirement Plans. It is a financial tool that helps calculate the funds required post-retirement, considering present expenses. It takes into consideration certain factors, like investments, income, age, savings, desired retirement age, etc. Let us know how it helps in retirement planning:
Financial assessment
The retirement calculator helps calculate the amount required post-retirement by using certain factors like years to retirement, per-month income, inflation rate, life expectancy, etc.
Financial planning
The calculator, along with helping in calculations, also assists in retirement planning by selecting the most appropriate plan to build the desired retirement corpus.
Also Read :
- Best Pension Schemes & Plans for a Better Retirement Life
- A Guide for Tax Planning & Tax Saving for Salaried Employee
Individuals with debts
To ensure that the previous debt does not have any adverse impact on the financial future of your family, a term plan will be the most suitable option.
Conclusion
Retirement plans have become quite important in today’s life as they offer financial security during retirement. As there are many options available, one can choose a retirement plan depending upon their financial needs & lifestyle envisioned post-retirement, making their lives comfortable.
A retirement calculator helps in estimating the amount required to be saved to maintain the lifestyle you desire post-retirement. It is an online tool which uses certain details & information to assess the amount of funds required to be invested, hence acting as a useful tool for retirement planning.
