Introduction: Ultimate retirement planning
Start planning your retirement today to secure a calm, independent life later. This simple guide for Indian salaried employees explains how to estimate your retirement corpus, use tools like EPF, NPS, PPF and SIPs, and protect your savings with insurance and an emergency fund.
Follow clear steps and use a retirement calculator to track progress so you can retire with confidence.
Why plan early?
– You will live longer. Costs rise with time.
– Starting early makes your money grow more with compounding.
– You get time to recover from market ups and downs.
Also read: What is Retirement planning and why should it be done early in life
Step 1 — Set a clear retirement goal
– Decide your retirement age. (60 is common.)
– Estimate monthly expenses you want at that time. Include food, house costs, health care, travel.
– Add a buffer for surprises (20–30%).
Step 2 — Find out how much you need (simple way)
1. Calculate today’s yearly expenses. (Monthly expense × 12.)
2. Grow it by inflation to the year you retire. Use a rough inflation rate like 6% per year.
3. A simple rule: required corpus ≈ annual expense at retirement × 25.
– This uses a 4% safe withdrawal idea (withdraw 4% of corpus a year, 5% is even better).
– Example: if you need ₹1.92 lakh per month in 20 years → yearly ≈ ₹23 lakh → corpus ≈ ₹23 lakh × 25 = ₹5.75 crore.
– Numbers are illustrative. Use a calculator for exact figures.
Also read: Smart strategies to fill gaps in your retirement corpus
Step 3 — Build a corpus with smart investments
– Employee Provident Fund (EPF): automatic saving from salary. Good fixed return + employer share.
– Voluntary Provident Fund (VPF): higher EPF contribution if you can save more.
– National Pension System (NPS): low-cost, tax-friendly, choose equity + debt mix. Extra tax benefit under 80CCD(1B) for ₹50,000.
– Public Provident Fund (PPF): safe, 15-year lock-in, tax-free interest. Good for long-term.
– Mutual funds (Equity SIPs): best for long-term growth. Use large-cap and index funds. Start SIPs early and increase SIP amount as income grows.
– ELSS funds: tax-saving mutual funds (lock-in 3 years).
– Fixed deposits, Post Office schemes, Senior Citizen Savings Scheme (SCSS) for late-stage safety.
– Annuities: after retirement, annuity plans give steady income. Use part of corpus for annuity, not all.
Step 4 — Asset allocation (simple rule)
– Your age can guide equity share: equity % = 100 − your age (flexible).
– Example: at 30 → ~70% equity, 30% debt.
– At 50 → ~50% equity, 50% debt.
– Rebalance once a year to keep target mix.
Also read: Young and planning retirement, know about Asset Allocation
Step 5 — Protect your plan
– Emergency fund: 6–12 months’ expenses in a liquid savings or short-term fund.
– Health insurance: buy family floater cover. Increase coverage as you age. Medical inflation is high.
– Term life insurance: cover outstanding loans and secure family income. Choose sum assured = 10–15 times annual income or based on liabilities.
– Pay off high-cost debt (credit cards, personal loans) before retirement.
Step 6 — Use tax rules to your advantage
– Section 80C investments (PPF, ELSS, EPF, life insurance) up to ₹1.5 lakh.
– NPS extra ₹50,000 under 80CCD(1B).
– Employer contributions to EPF and NPS have tax rules—check limits.
– Long-term capital gains tax applies on equity gains over ₹1.25lakh per year (12.5% without indexation). Plan withdrawals smartly.
Step 7 — Plan for pension and other income
– Check EPF and gratuity estimates with your HR. These are part of retirement income.
– Consider partial annuity for stable income. Keep a mix: some corpus in annuity, some in market for growth.
Step 8 — Estate planning
– Make a will. Keep nominees updated in EPF, bank, mutual funds.
– Consider a power of attorney for handling finances in case of incapacity.
Also read: Myths around Nominee, Joint applicant and a Will
Action plan by age
– In 20s: Start SIPs. Build emergency fund. Buy term insurance. Maximize EPF & 80C.
– In 30s: Increase SIP amounts with salary hikes. Buy a family health cover. Start PPF/NPS.
– In 40s: Focus on reducing debt. Shift some to safer assets. Rebalance portfolio.
– In 50s: Preserve capital and secure income streams. Consider part annuity. Finalize retirement budget.
Common mistakes to avoid
– Relying only on fixed deposits.
– Delaying start. Every year lost costs more near retirement.
– Not having adequate health cover.
– Ignoring inflation and tax while estimating needs.
Quick example (simple numbers)
– Current monthly expense: ₹50,000.
– Want to retire in 20 years. Inflation 6% → future monthly ≈ ₹1.6 lakh.
– Annual = ₹19.2 lakh. Corpus ≈ ₹19.2 lakh × 25 = ₹4.8 crore.
– If you expect 10% annual return on investments, monthly SIP needed ≈ ₹62,000 for 20 years.
– These are example figures. Use an online SIP/retirement calculator for exact amounts.
Tools to use
– Online retirement calculators.
– SIP calculators.
– NPS and PPF calculators.
– Speak with a certified financial planner for a tailored plan.
Checklist — What to do now
– Note current monthly expenses.
– Decide retirement age and lifestyle.
– Open or review EPF, PPF, NPS accounts.
– Start/increase mutual fund SIPs.
– Build emergency fund and buy health + term insurance.
– Rebalance yearly and track progress.
Final tips
– Start early, even small amounts help.
– Increase savings with salary hikes.
– Keep a long-term view with equity for growth.
– Protect yourself with insurance and an emergency fund.
Disclaimer
This is general information, not personalized financial advice. For a plan tailored to your situation, consult a certified financial planner or tax advisor.
