1) Planning for retirement early is important to ensure adequate financial support for one's golden years and maintain a desired standard of living after leaving the workforce. 2) Starting retirement savings early with small monthly amounts allows time for funds to grow substantially to meet future needs. 3) Using the replacement ratio method, one can estimate the monthly or annual income needed in retirement as a percentage of pre-retirement earnings and then calculate how much needs to be saved each month to achieve that target income level over the savings period. Starting savings earlier dramatically reduces the required monthly amount.

1. MAKE RETIREMENT AN ENTRY NOT AN EXIT
R.GOPINATH
gopinathr@go-past.com
Are we prepared to live long?
Yes, most of us want to live long, but the question is are we prepared for it?
Well, the fact is that most of us are not prepared.
Adequate Retirement provisions is required to ensure all or a few of the under mentioned
aspects happen:
1) Maintain the standard of living that we are accustomed to.
2) Enables to do things that we could not during our working days. (Things that we are
passionate about, but have not been able to do being engaged in working to earn
for the living like Photography, Visiting 7 wonders of the World, Writing a book,
painting and so on)
3) Preserve our dignity by being independent.
4) Provide for contingencies (unforeseen).
5) Support others whom we care. ( In case our dear ones need some help.)
6) Early retirement.
Are we prepared to live long? yes, most of us want to live long but the question here is are
we prepared for it? Planning adequate financial support for those golden years has to start
very early in life to meet it. But we know that a majority of people start thinking about it only
when they are nearer to it.
To build substantial base for a continuous cash in-flow the acquisition has to start early
with small amounts, allowing enough time for it to grow.
There are two methods to quantify the post retirement income. Replacement ratio method
and the Expenses provision method.
Replacement ratio method, as the name explains it, is estimating a certain percentage of
the active income at the time of retirement to continue for life time after retirement.
Say for example my friend Mr. Atul (age 50) earning `1,00,000 per month now wants a
minimum of 50% of his income at his retirement ( age 60) as the post retirement income
(pension).
Let us suppose that his income goes up at the rate of 10%p.a , Then he will be drawing an
income of `3,36,000 at age 60,
50% of that is `1,18,000.
Now if we estimate the corpus required to generate this monthly income of `1,18,000, (at a
rate of 8% pa simple) it takes ` 1,77,00,000 to yield that.

2. So now the goal is to generate `1,77,00,000 in the next 10 years. How much do you think
Mr. Atul will be required to be set aside for this purpose, assuming that he will get 12% on
his yearly savings?
Almost `77,000 per month (total salary today is 1,00,000). (Please Donʼt faint..).
Suppose he needs the same amount of pension and had Mr. Atul started at age 40
(instead of age 50) then Mr.Atul may have to set aside only `18,000 per month at the
same rate of return from his age 40 to achieve this goal.
Mr.Atul do you see the difference?
Start planning for the retirement early, so that you can provide adequately for those golden
years. You must decide now as to what style of life you would like to have after retirement?
1) Free to do things (Complete Freedom/ dignified)
2) Maintain the standards (Decent)
3) Curtail and live within the means (Adjust and Compromise)
4) Depend on others for basics ( Helpless)
Some of the major road blocks to a good, decent and dignified retired life is:
1) Lack of planning,
2) Shy to consult a financial professional,
3) Wrong prioritization ( Ex.- Housing loan with a huge EMI at young age)
4) Spending more during the active work life and saving less,
5) Unexpected expenses during the middle age,
6) Inadequate insurance,
7) Consuming the retirement fund for other interim needs
This Replacement Ratio method does not consider the inflation rates because of the
underlying assumption that income will decide the expense and if a proportion of the
income is provided for then it will take care of the rest.
Retirement need not be an exit, but can be an entry into a world of freedom.